Construction saw another challenging quarter as residential starts fell by over a third, according to research by Glenigan.
The July Construction Review from the insight and intelligence company focuses on the three months to the end of June 2026, covering all major (>£100m) and underlying (<£100m) projects.
The overall construction sector saw an 8% in projects starts, while major contract awards also fell 6% year-on-year in Q2. Glenigan says that this indicates a lack of investor appetite, particularly in commercial sectors, which saw some of the biggest declines.
However, there were positive signs in the sector, with a 13% increase in detailed planning approvals, although this is still 20% below the levels seen in 2025.
Residential construction experienced a tough quarter. Project starts fell 34% year-on-year, and detailed planning approvals slipped 16%, though Glenigan says that a 16% rise in main contract awards offered a degree of encouragement, pointing to continued commitment to larger schemes already in the pipeline.
Social sector housing construction performed well, recording strong growth and accounting for the largest share of starts. Private housing and private apartments both fell sharply, which Glenigan says reflects the ongoing impact of elevated borrowing costs and cautious buyer sentiment.
London dominated activity, with project starts reaching £2.5billion, while the East of England led on planning approvals, rising 92% year-on-year. Most other regions recorded notable declines.
Glenigan says that the road to recovery is a long one, but the direction of travel might improve due to more favourable economic conditions, expected in H2 2026. Lower borrowing costs, rising real incomes and planning reforms are expected to ease conditions gradually, with a more meaningful private housing recovery anticipated from 2027.
Allan Wilen, economics director at Glenigan, said: “The outlook remains delicately balanced. Yes, a bounce in planning approvals point to underlying demand, but weaker awards and starts highlight ongoing challenges around viability, financing and funding. A raft of different factors, including interest rate movements, construction cost inflation and government infrastructure investment will be critical in determining whether the stronger pipeline translates into sustainable growth in project activity.”
“Whilst the next two quarters are going to see little movement of the dial, we still predict, according to our 2026 – 2028 Forecast, that recovery will be seen in 2027. However, with the promise of a new Prime Minister going into the second half of 2026 we might see the situation change further, as the new administration looks to establish its own identity. The big question on everyone’s lips now will be whether they stick to the parameters of the Manifesto and spending commitments made in 2024, or decides to plot their own political course and economic direction. The industry will watch developments with keen anticipation over the coming weeks, deciding how to re-strategise to seize any opportunities that arise.”
