The latest Office for National Statistics (ONS) GDP Quarterly National Accounts paint a picture of a UK economy moving forward, but only just. Real GDP grew by 0.1% in Q3 2025, unchanged from the first estimate, confirming a period of weak but positive momentum.

For the construction sector and particularly for London the message is nuanced: activity is holding up, but the structure of demand is shifting.

Construction output increased by 0.2% in Q3 2025, matching the growth rate of the services sector and outperforming production, which contracted by 0.3%. On the surface, this appears encouraging, construction remains one of the few sectors making a positive contribution to GDP growth.

However, the composition of that growth matters.

⏫ Repair & Maintenance (R&M) rose by 1.0%

⏬ New Work fell by 0.3%

⏫ Private housing R&M surged by 3.4%

⏬ Private housing new build declined by 1.9%

This split highlights a structural shift away from speculative development and towards asset sweating, compliance works and lifecycle extension, a trend particularly pronounced in London.

London’s Construction Market

London’s construction economy is more exposed than most regions to regulatory cost, financing conditions and planning risk. The ONS data aligns closely with what contractors, consultants and developers across the capital are already experiencing on the ground.

Three London-specific dynamics stand out:

Regulatory-Driven Activity Is Propping Up Output

The growth in repair and maintenance reflects rising demand for:

• Building Safety Act remediation
• Fire safety upgrades
• Structural strengthening
• Retrofit and decarbonisation works

For London’s higher-risk and older building stock, these are no longer discretionary projects. They are mandatory, time-bound and often capital-intensive, providing a steady workflow even as new developments stall.

New Build Remains Under Pressure

The fall in new work is consistent with:

• Continued viability challenges in residential schemes
• Elevated financing and compliance costs
• Slower planning approvals
• Developer caution ahead of clearer economic signals in 2026

This structural slowdown in residential development demand is analysed in more detail in our recent outlook piece on the London property market restart in 2026, where we unpack how pricing, affordability and investment inflows are shaping developer decisions. The result: many schemes remain paused rather than cancelled, creating a pipeline drag effect rather than a sharp collapse.

Business Investment Is Improving 

Gross Fixed Capital Formation rose 1.3%, with business investment up 1.5% quarter-on-quarter. This suggests that while developers remain cautious, infrastructure, fit-out, plant and specialist works are beginning to unlock capital again.

For London contractors, this favours:

• Specialist subcontractors
• Temporary works designers
• Testing, inspection and compliance services
• Retrofit and change-of-use specialists

The Wider Economic Context

Despite headline GDP growth, real GDP per head was flat and real household disposable income per head fell by 0.8% in the quarter. In practical terms, this means:

• Demand remains fragile
• Consumer-led construction sectors (private housing, retail-led schemes) stay under pressure
• Cost sensitivity across both public and private clients remains high

London construction businesses are therefore operating in a high-activity, low-margin environment, where workload does not necessarily translate into profitability.

What This Means for London Construction in 2026

The ONS data reinforces a clear directional shift rather than a cyclical bounce.

Likely winners:

• Firms aligned with regulation, safety and compliance
• Contractors strong in R&M, retrofit and complex existing assets
• Consultants and specialists supporting Gateway 2 & 3 compliance
• Businesses offering risk reduction, testing and assurance

Continued pressure on:

• Pure new-build residential developers
• Speculative commercial schemes
• Margin-light subcontractors exposed to price competition

Construction is not driving UK growth, but it is preventing stagnation.

For London, Q3 2025 confirms a market that is working hard but not expanding, supported more by regulation and necessity than optimism. Until confidence, household income and development viability improve, repair, compliance and lifecycle construction will remain the capital’s core engine. And while new-build recovery is possible, our 2026 London property restart analysis explains exactly what conditions need to shift before developers press go on paused pipelines.

For construction businesses operating in London, adaptability, not scale, is the defining competitive advantage heading into 2026.

image: constructionmagazine.uk

Expert Verification & Authorship: Mihai Chelmus Founder of London Construction Magazine | Construction Testing & Investigation Specialist | 15+ years in construction, 10+ years delivering projects in London. Writing practical guidance on regulation, compliance and real on-site delivery reality.