Index heads back to trend, but wider pressures remain
As with the last four years, it is clear that any recovery that felt underway at the start of the year has once again been buffeted by global events. This correlates with the latest reading from the Savills Build: Perspective index, which, after falling negative at the back end of 2025 for the first time since our index began, rose sharply in 2026 to reach a score of 36. Looking forward, our index is showing an expected fall, suggesting the initial pressure on build costs and programme timescales has waned for the time being.
For the construction sector, subdued economic growth, cautious investor sentiment and elevated financing costs continue to constrain project viability. Early Q3 data confirms this: total output increased by only 0 .1% in July, with growth dependent on repair and maintenance, while new work declined by 0.4%. As winter sets in, we can expect energy prices to rise, which is already putting upward pressure on inflation and some input costs. Competitive tendering, however, is helping to contain some cost inflation as contractors accept lower margins. The overall picture remains one of cautious stability.
Whilst the first Budget of the Burnham era did not rattle markets, it hasn’t paved the way for economic growth either. Combined with the Bank of England raising interest rates, development viability will remain challenging for speculative development and likely place greater emphasis on refurbishment and value engineering strategies.
