Research from international real estate advisor Savills highlights that geopolitical tensions, and factors such as changes to steel trade tariffs from July 2026, are continuing to impact the UK construction sector. While evidence remains limited, the sharp rise in the Build: Perspective index suggests there will be build cost increases during the second half of 2026. However, over the longer term, development viability could improve as contractors price work more competitively and vacancy rates tighten, supporting rental growth.
As the year began, confidence across UK real estate markets showed signs of recovery, with a more positive outlook for development viability following several challenging years, according to Savills. However, expectations for build costs and programme length have moved in the opposite direction as a result of ongoing geopolitical tensions. The Savills Build: Perspective index rose sharply in early 2026 to +36, having fallen into negative territory at the end of 2025 for the first time since its inception, indicating that most sectors now anticipate an upward movement in build costs and longer programme lengths in the near term.
Geopolitical tensions are beginning to feed through into the construction supply chain. Although it remains too early to fully quantify the impact of the Middle East conflict, early evidence suggests materials suppliers are passing on cost increases linked to fossil fuel inputs. Even with a potential near-term resolution, disruption to global shipping routes and energy markets is expected to persist, reinforcing expectations that build cost pressures will remain elevated through 2026.
Over the medium term, some offsetting effects are likely, according to Savills. With fewer projects progressing, development pipelines are expected to shrink, reducing vacancy rates and supporting rental growth. At the same time, contractors may choose to price work more competitively to secure projects, which could help mitigate cost increases in some parts of the market and support development viability.
Savills states that occupier demand remains focused on best-in-class space. In Central London, Grade A offices accounted for a record 93% of take-up in 2025, reflecting the continued flight to quality. With limited new supply in regional markets, occupiers are increasingly looking to refurbishment rather than new development.
A reduction in speculative development is also driving a shift in strategy across other sectors, according to Savills. In the industrial and logistics market, speculative pipelines have fallen by nearly two-thirds since their 2022 peak, prompting greater focus on upgrading existing stock. Sustainability is playing an increasingly important role, with EPC A+/A rated units commanding rental premiums of up to 55% compared with lower-rated assets.
In the science sector, rising construction costs are driving demand for more flexible, affordable ‘mid-tech’ space, particularly in Oxfordshire, where Savills data shows that over 900,000 sq ft has been transacted. Meanwhile, the living sector faces viability challenges. Despite strong investor appetite, constraints loom caused by rising construction and financing costs, alongside regulatory complexity and planning delays, according to Savills.
Simon Collett, Executive Director, Head of Professional Services at Savills, says, “Geopolitical tensions continue to have an impact on the UK construction sector. While current evidence is still emerging, the increase in cost sentiment captured by our Build: Perspective index suggests that build cost pressures are likely in 2026. Over the longer term, development viability could improve as contractors price work to win, alongside tightening vacancy rates which support rental growth.”
Kevin Mofid, Commercial Research Director at Savills, adds, “The key theme for 2026 will be divergence across sectors. While cost pressures continue to weigh on viability in some areas, others are adapting through refurbishment, alternative formats and a sharper focus on prime, sustainable space.”
