Rising Tender Prices Put Pressure on Viability of Major UK Construction Schemes

The viability of large-scale construction projects across the UK is increasingly at risk as tender prices are forecast to rise sharply in the coming years, according to a warning from cost consultancy Turner & Townsend.

New figures from the firm’s Winter 2025 UK Market Intelligence report indicate that construction tender prices could increase by as much as 5% this year, placing significant strain on budgets for major programmes. The report predicts average annual tender price inflation of 3.5% for real estate projects and 5.0% for infrastructure through 2026 and 2027. While this represents only a modest increase on last year’s figures, Turner & Townsend says the cumulative impact of sustained cost escalation is threatening the feasibility of new developments during a period of continued economic uncertainty.

Construction activity remains subdued, with output at its weakest level since the financial crisis, according to the latest S&P Global UK Construction Purchasing Managers’ Index. Despite this, signs of renewed demand are emerging as government growth ambitions boost confidence in sectors such as logistics, manufacturing and offices. Orders for new construction work rose by 29.3% in the year to Q3 2024, marking the fastest growth since pandemic restrictions were lifted.

The report also highlights the risk of inflation accelerating further if reforms under the government’s Planning and Infrastructure Act lead to faster project starts and increased demand. This pressure is compounded by ongoing workforce challenges, with around 50,000 construction workers leaving the sector over the past year, according to Office for National Statistics data. Turner & Townsend warns that shrinking labour capacity, combined with market volatility, could significantly disrupt delivery of future schemes.

Stephanie Marshall, UK managing director for real estate cost management at Turner & Townsend, said uncertainty at the end of last year – driven by the Autumn Budget and ongoing geopolitical tensions – has continued into 2026, leaving many clients hesitant to commit to new projects. However, she noted that demand from both public and private sectors remains strong as the government seeks to stimulate economic growth.

With several major programmes expected to come forward within the next two years following the Spending Review, Marshall cautioned that the industry cannot afford to delay action until capacity constraints become critical.

To help mitigate these risks, Turner & Townsend is urging clients to rethink traditional approaches to procurement, including better risk-sharing arrangements and closer collaboration with contractors. Marshall emphasised that monitoring project viability should be an ongoing process throughout delivery, rather than a one-off decision at procurement stage.

She added that early engagement with the supply chain and treating contractors as long-term partners, rather than transactional suppliers, will be key to identifying risks early and maintaining momentum.

“Despite the challenges, there are significant opportunities ahead for the construction sector,” Marshall said. “To capitalise on them and support wider economic growth, we need robust business cases, the right delivery models and a skilled workforce in place now.”