Global professional services firm Turner & Townsend has warned that rising tender prices are set to challenge the delivery of major UK programmes throughout the coming years.

According to its Winter 2025 UK Market Intelligence (UKMI) report, tender price inflation (TPI) is forecast to reach 3.5% for real estate and 5.0% for infrastructure annually through 2026 and 2027.

While these figures represent a modest 0.5 percentage point increase over the rates seen last year, the report suggests that sustained cost escalation is making new projects increasingly difficult to justify financially. This comes despite construction output currently sitting at its lowest point since the financial crisis, as indicated by the S&P Global UK Construction Purchasing Managers' Index.

The sector is currently experiencing a "fresh wave of demand," largely driven by government growth plans and a modern industrial strategy. This has led to a 29.3% increase in new work orders in the year from Q3 2024—the sharpest rise since the end of pandemic lockdowns. However, this growth is being met by severe capacity constraints, with the Office for National Statistics (ONS) reporting a loss of approximately 50,000 workers from the sector in the past year.

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The report notes that the TPI rate could accelerate further as the Planning and Infrastructure Act aims to speed up project starts, causing various government missions to compete for limited resources.

Addressing the specific impact on the Scottish market, James Darrie, Strategic Lead for Scotland at Turner & Townsend, said: "In Scotland, the pressures highlighted in our latest UK Market Intelligence are being felt acutely across both public and private programmes. While demand remains strong, particularly across energy, infrastructure and public assets, constrained capacity, skills shortages and continued inflationary pressure are already testing viability."

Mr Darrie also emphasised the need for a shift in how project risks are managed: "At the same time, there is a growing need for clients to be more realistic about risk allocation; contractors are no longer willing or able to absorb all risk in an increasingly volatile market. With a significant pipeline of major projects coming forward, the focus must be on early engagement with supply chains, realistic cost planning, equitable risk-sharing and robust delivery strategies to ensure Scotland can convert ambition into projects that are deliverable and economically sound."