Subdued outlook in 2026
European construction is expected to expand in 2026 following a restrained 2025, during which several key markets – such as France and Germany – experienced a slowdown. In contrast, Spain remained relatively resilient and is also benefiting from a particularly favourable project pipeline. The UK sits somewhere in between, with a weak private sector offset by rising infrastructure investment, supporting a more positive outlook for 2026.
In North America, construction activity is decelerating. Canada’s residential sector remains stagnant, while Mexico’s civil engineering sector is weakening due to reduced friend-shoring and fiscal consolidation. The outlook for the US is uncertain, with a depressed residential market driven by high mortgage rates, a slowing civil engineering sector, and a relative decline in commercial non-residential activity. These challenges are being compounded by a worsening shortage of skilled labour and challenging input costs, partly due to import pressures.
Asia-Pacific presents a mixed picture. China continues to weigh on regional activity, with weak sales, thin margins and persistent debt concerns. Australia is expected to see gradual improvement in 2026, while India should maintain solid growth, albeit at a slower pace than in previous years.
Within the Gulf region, construction remains robust in Saudi Arabia and the United Arab Emirates (UAE). Growth is expected to continue into 2026, although lower oil prices, project delays and rising costs may temper the ambitions of their respective governments.
Homebuilding outlook is diverse
After again falling by nearly 1% year-on-year in the first eight months of 2025 – mainly due to an almost 6% fall in Germany and France – the European residential sector is projected to recover in 2026, supported by the past years' interest-rate cuts from the European Central Bank and other central banks, although longer rates have remained high, which limits the impact in countries with long fixed mortgage rates like France. After two challenging years, residential prices are bottoming out in most countries and housing permits are finally increasing, signalling a healthier pipeline – even in France and Germany, although the latter is starting from a very low base. Nevertheless, margins remain thin, debt servicing costs are elevated and insolvencies continue to be high.
In the US, long-term fixed mortgage rates remain high: the Freddie Mac 30-year fixed rate is still around 6.4% and has suppressed demand. Deflated construction spending fell almost 5% year-on-year in the first seven months of 2025. These rates exceed those of existing mortgages, contributing to market stagnation as new buyers cannot enter the market and sellers do not wish to give up their low-rate mortgages. With economic growth slowing and permits declining throughout 2025, the residential market is expected to remain weak in 2026.
Across much of Asia-Pacific, the residential sector remains weak. China faces oversupply issues, while poor demographics in Japan and South Korea constrain growth. However, urbanisation continues to support activity in India and much of Southeast Asia. Australia is experiencing a recovery, driven by lower interest rates and rising approvals.
Infrastructure still stable
Civil engineering has been the most stable segment in Europe – growing at 1.5% year-on-year in the first eight months of 2025 – and is expected to continue growing in 2026. Government-led initiatives – such as Germany’s infrastructure ambitions – and EU funding will drive activity. The final instalments of the European Recovery and Resilience Facility (RRF), totalling around EUR 35 billion in both, will be allocated to Spain and Italy. However, fiscal consolidation and upcoming elections may limit investment in some countries, such as the 2026 municipal elections in France. Labour shortages remain a significant constraint, pushing up costs, although margins have largely been preserved and insolvencies have been relatively limited.
In the US, civil engineering has maintained momentum – although activity was unchanged in first seven months of 2025 after strong growth in previous two years – and is expected to continue growing steadily in 2026, with backlogs supporting approximately three-quarters of current activity. Labour shortages are acute, leading to rising wages and higher costs, which are exacerbated by tariffs. Nonetheless, companies have so far managed to maintain margins.
In developing Asia, the need for improved infrastructure remains high, supporting a strong outlook in India and China, where government investment continues. Public spending is also expected to sustain activity in developed countries, particularly Japan and Australia, with a focus on digital infrastructure, energy and disaster resilience.
On back of ambitious plans, governments in Saudi Arabia (Vision 2030) and UAE (Abu Dhabi Economic Vision 2030 and Dubai Industrial Strategy 2030) continue to drive strong growth as they aim to diversify the economy away from its reliance on hydrocarbon production.
Slow recovery expected in commercial
Europe’s non-residential sector stagnated in 2025 – permits were down by around 2% year-on-year in the 12 months to June, excluding offices, and office buildings were down by 15% in the EU – but is expected to see modest improvement in 2026, as companies plan to increase capital expenditure after holding back due to uncertainty and high interest rates. Although the office space market continues to struggle, overall commercial property prices have stabilised as other commercial property like logistics/warehousing are still doing well.
In the US, commercial activity has been driven by successive waves of investment – first in ICT manufacturing (largely due to the CHIPS Act), followed by a boom in data centres. The latter is expected to continue growing in 2026, with backlogs supporting activity throughout the year. Excluding ICT manufacturing and datacentres, commercial construction was down by 7% year-on-year in the first seven months of 2025. Additionally, commercial property prices have slowed, and the outlook for the other sectors suggests a potential deceleration.
The outlook across Asia-Pacific is more varied. Non-residential construction in China remains subdued, with low-capacity utilisation and limited investment. South Korea is experiencing similar trends. In contrast, Japan and Australia present a more favourable outlook, with favourable commercial property prices still in place and positive investment intentions. Despite tariff uncertainties, India’s capital investment outlook should continue to support commercial construction, and the country remains an attractive alternative to China.
Slow growth but stable outlook for building materials
Demand for cement and concrete is expected to increase slightly in Europe and North America in 2026, both in volume and price terms. In developing regions such as Africa and Asia, volume growth is likely to outpace price increases. The Middle East – particularly Saudi Arabia and the UAE – also stands out with a strong growth outlook.
Construction materials companies have largely retained their pricing power, particularly in heavier segments. As a result, sales have outperformed volume growth (occasionally falling), and profit margins have generally remained stable.
The construction sector – especially the building materials industry – is a major contributor to global carbon emissions. The production of materials such as cement, steel and glass is energy-intensive and generates significant greenhouse gases. In response, the industry is investing heavily in decarbonisation initiatives. However, the associated capital expenditure poses a substantial financial challenge, particularly for smaller firms with older plants and equipment.
Construction