Turner & Townsend has warned that weaker national construction output is concealing intensifying cost pressures on individual schemes, meaning price escalation is unlikely to abate.

Despite a softer market, the consultancy has increased its tender price inflation (TPI) outlook for the first time in two years in its Q4 2026 UK Market Insight (UKMI) report.

The UKMI shows real estate tender price forecasts rising from 3.5 to 3.75 percent across both 2026 and 2027. Infrastructure tender pricing is expected to climb from 5.0 to 5.25 percent over the same period.

Official data indicates that total new work output in Q2 2026 was 6.1 percent lower than a year earlier, while new orders fell 18.1 percent over the past 12 months. However, softer activity in commercial and residential markets is being offset by strong investment in major infrastructure, energy programmes and data centres, limiting the downward pressure on tender prices that a quieter market would typically deliver.

Additional headwinds include rising material and commodity costs linked to tariffs and geopolitical tensions, along with tighter building regulations and increasingly complex specifications.

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Turner & Townsend's London market analysis points to particularly acute pressures in the capital. Prolonged weakness in housing and private commercial development has curbed overall output, yet hot spots such as office development are intensifying competition and pushing up costs.

For specialist contractors, uneven demand is colliding with an uncertain economic backdrop, with construction insolvencies set to surpass pre-pandemic levels. Supply chain partners are becoming more selective about the work they take on and the contractual terms they accept. Two-thirds of contractors polled by Turner & Townsend said they are prioritising strengthening profit margins over growing revenue, underlining greater selectivity and risk aversion.

This two-speed picture is producing increasingly divergent local market conditions, with concentrated demand heightening competition in some regions while others remain markedly cooler.

To maintain momentum in what it describes as a sellers' market, Turner & Townsend urges clients to assess contractor capacity and appetite in target regions and sectors, and to engage early. Clear scopes, well-developed designs and balanced contractual arrangements will help make projects more attractive and secure the necessary supply chain.

James Darrie, Strategic Lead for Scotland at Turner & Townsend, said: "Scotland's construction market reflects many of the trends we're seeing across the UK. While overall activity levels remain mixed, demand associated with infrastructure investment, the energy transition and other major programmes continues to compete for labour, specialist skills and key materials.

"As a result, project teams need to look beyond national output figures and understand the realities of their local market. Headline data can mask very different conditions on the ground, with contractors and specialist suppliers becoming increasingly selective about the opportunities they pursue.

"For organisations planning investment in Scotland, early engagement with the market is more important than ever. Projects that are well-defined, backed by realistic delivery programmes and supported by balanced commercial arrangements will be better placed to secure the skills and capacity they need."