Editor's note: This brief was summarised by The Property AI Newsroom from a report by Property Industry Eye. Read the original article for full details.

Construction Costs Forecast to Rise Sharply Despite Market Slowdown

Building costs are forecast to rise by 13.1% over the next five years, with tender prices expected to increase by 15.5%, according to updated forecasts from the Building Cost Information Service (BCIS). The latest outlook suggests the construction sector will face a challenging year in 2026, with total new work output forecast to contract by 2.7% before returning to modest growth from 2027 onwards.

The BCIS report highlights that cost pressures are expected to continue despite a short-term slowdown in construction activity. The industry is forecast to resume steady growth over the remainder of the forecast period. The BCIS All-in Tender Price Index (TPI), which tracks contractors’ pricing levels in accepted tenders, saw annual growth of 3.2% in the second quarter of 2026. BCIS forecasts the TPI to grow by 2.9% by the end of 2026, and by 15.5% over the five years to the second quarter of 2031.

On the input costs side, the BCIS General Building Cost Index (GBCI) increased by 1.4% between the first and second quarters of 2026, resulting in annual growth of 3.8%. Materials cost inflation has accelerated during the Middle East conflict, with Brent crude prices consistently exceeding $100 per barrel in recent months, driving up costs for energy-intensive materials. Although a ceasefire has since brought prices down from those elevated levels, the situation remains uncertain, and any sustained easing is expected to move gradually through supply chains. The GBCI is forecast to rise by 13.1% over the five-year period.

At the start of 2026, markets were anticipating two interest rate cuts during the year. Expectations have since shifted, with cuts now off the table and a hike a possibility. For the construction sector, where financing conditions shape both development decisions and project viability, this represents a significant change in the outlook in a short space of time.

These forecasts are relevant for UK letting agents and inventory clerks, as rising construction and materials costs may impact property refurbishment, maintenance, and development projects in the coming years.