London construction did not enter 2026 with a clean recovery or a uniform slowdown. Instead, activity has re-sorted itself by sector, risk profile and regulatory readiness. The most consistent signal across planning data, starts, contract awards and procurement behaviour is not collapse, but filtering.
Projects that are capital-secure, infrastructure-linked, or technically differentiated are progressing. Schemes reliant on speculative residential absorption, long forward funding exposure or late regulatory certainty are stalling or fragmenting into phases. This distinction matters more than headline output figures.
| Sector | Delivery Status (Jan 2026) | Primary Constraint | What Is Actually Happening on Site |
|---|---|---|---|
| Private Housing | Structurally contracting | Viability + regulatory front-loading | Consented schemes not mobilising; enabling works only |
| Build-to-Rent | Capital present, starts delayed | Gateway timing + carry cost | Schemes paused, phased or redesigned rather than started |
| Small-site Infill | Proceeding steadily | Scale limits output | Low-risk schemes moving through to build |
| Office (Grade A / Conversion) | Selective growth | Letting certainty + ESG thresholds | Refurbishments and conversions progressing |
| Retrofit & Reuse | Structurally strengthening | Specialist capacity | Deep retrofit replacing new-build decisions |
| Infrastructure & Transport | Workload anchor | Labour & interface complexity | Major programmes driving sustained site activity |
2. Housing activity continues to contract
Private housing remains the weakest part of the London construction market entering 2026, and the contraction is no longer cyclical or sentiment-led. It is structural. Across London boroughs, the limiting factors are not land availability or planning policy in isolation, but a combined squeeze from viability erosion, extended pre-construction periods and regulatory front-loading under the Building Safety regime. The result is a market where permission exists, capital interest persists, but delivery does not follow.
Viability pressure is now occurring before spades enter the ground. Detailed design obligations, Gateway sequencing and early evidence requirements have shifted cost and programme risk forward, lengthening the gap between consent and start. For many schemes, that gap has become commercially untenable.
What is increasingly visible on site is not wholesale cancellation, but non-mobilisation. Developments remain consented yet inactive, with activity limited to enabling works, early infrastructure or partial releases rather than full build-out. This distinction matters: it masks the scale of the slowdown in headline planning statistics while locking in a delayed but material reduction in future completions.
In several inner‑London boroughs, fewer than one in four consented private schemes progressed to full mobilisation in 2025, despite stable approval volumes.
This pattern is consistent with wider London data showing approvals continuing while starts and site mobilisation lag behind. The housing pipeline exists on paper, but it is not converting into physical output.
Where housing delivery is proceeding, it is increasingly concentrated in small, low-risk infill schemes rather than large estate or tower-led developments. Recent borough approvals, such as the five-storey, nine-unit mixed-use scheme on a former car park in Enfield, illustrate the prevailing model: modest scale, tight envelopes, no affordable housing provision, and limited infrastructure exposure.
Similar patterns are visible in Hackney, Lambeth and Hounslow, where sub‑20‑unit schemes are advancing while large mixed‑tenure developments remain dormant.
These schemes are viable precisely because they avoid the compounded risks faced by larger residential projects. They are quicker to approve, easier to finance, and less exposed to regulatory sequencing risk. However, they are incapable of replacing the output lost from stalled large-scale developments.
Build-to-rent was previously expected to stabilise London housing delivery during market downturns. Entering 2026, that assumption no longer holds. Capital appetite remains, but delivery has broken down. Extended Gateway timelines, interest rate sensitivity and labour competition from infrastructure and data-centre work have pushed many schemes into pause or redesign, rather than start.
This has created a disconnect where investment volumes exist nationally, yet London starts collapse disproportionately. Capital is not withdrawing from housing; it is relocating to regions with lower regulatory friction and shorter delivery cycles.
The practical consequence of suppressed starts is not immediately visible in completions data, but it is already locked into the system. Housing delivery in London operates on long lead times. The absence of starts in 2024–2025 will translate into materially lower completions through 2027 and 2028 regardless of any policy intervention announced in 2026.
This means the housing shortage is set to worsen even if market conditions improve. The constraint is no longer demand or intent, but the physical absence of projects moving through the construction pipeline.
London is not failing to approve housing. It is failing to mobilise it at scale. Small infill schemes will continue to proceed, but they represent a defensive adaptation, not a solution. Until regulatory certainty, viability and programme risk are reduced simultaneously, private housing delivery will remain structurally constrained, not temporarily paused.
3. Build-to-rent: capital present, starts absent
Build-to-rent illustrates the disconnect between capital availability and delivery. Institutional appetite has not disappeared, but the ability to convert funding into starts has deteriorated sharply. Interest rate sensitivity, longer Gateway approval timelines and constrained labour availability have pushed many schemes into pause or redesign.
As a result, build-to-rent is no longer acting as a counterweight to private for-sale housing in London. Instead, capital is increasingly diverted to regional markets where regulatory friction and build costs are lower, reinforcing London’s relative slowdown.
Regional markets such as Manchester, Birmingham and Leeds are now absorbing BTR capital that would previously have targeted Zones 2–4, due to shorter Gateway cycles and lower labour competition.
4. Retrofit and reuse move into the mainstream
By contrast, retrofit and refurbishment activity has become one of the most stable areas of London construction entering 2026. This is not driven by short-term stimulus, but by structural incentives: embodied carbon constraints, planning policy support, and occupier demand for upgraded rather than replaced assets.
Central London boroughs are now approving more major refurbishments than new‑build office schemes, with Westminster and Camden showing the sharpest pivot.
Office refurbishments, mixed-use conversions and targeted reuse schemes are progressing with greater certainty than many new-build projects. These schemes benefit from shorter programmes, clearer regulatory pathways and lower exposure to residential market volatility.
5. Office delivery narrows to quality and conversion
Office construction in London is no longer volume-led. Activity is concentrated almost entirely in Grade A new builds, deep retrofits and office-to-hotel or office-to-mixed-use conversions. Speculative mid-grade office schemes remain difficult to justify without strong pre-letting or location-specific advantages.
Deep retrofits of 1990s and early‑2000s office stock now dominate the pipeline, particularly in the City fringe and West End.
This creates a market that appears busy in specific sub-sectors while remaining thin overall. Contractors with the right commercial, façade and M&E capabilities are well utilised, but the forward pipeline is narrower than recent start data alone would suggest.
6. Infrastructure and transport provide the workload anchor
Infrastructure and transport projects continue to provide the most reliable workload entering 2026. Large programmes in rail, utilities, energy and public-sector frameworks are insulating parts of the industry from volatility elsewhere.
The constraint here is not demand but capacity. Labour availability, specialist supply chains and interface complexity are now the limiting factors. This is drawing skilled resources away from residential and discretionary commercial work, reinforcing the divergence across sectors.
Specialist rail systems, tunnelling, and high‑voltage electrical trades are now operating at near‑full utilisation, creating knock‑on delays for complex urban projects.
7. Why starts, awards and site mobilisation are diverging
One of the clearest signals at the start of 2026 is the growing gap between contract awards and physical mobilisation on site. Awards are not collapsing at the same pace as starts, yet site activity lags behind both.
A growing number of London schemes are being let on two‑stage or pre‑construction services agreements (PCSAs), with main works deferred until regulatory and cost risks stabilise.
This reflects a shift toward phased procurement, early contractor involvement and delayed start mechanisms. Risk is being managed through programme flexibility rather than removed entirely. For contractors, this means bid pipelines remain active, but workload certainty is lower than headline award figures imply.
8. What this means for London construction decisions in 2026
The London construction market in early 2026 is not uniformly weak, nor is it broadly recovering. It is selective, regulated and increasingly polarised.
Housing delivery will remain constrained regardless of policy intent, due to the lag between starts and completions already locked into the system. Retrofit, infrastructure and specialist commercial work will continue to absorb capacity and protect margins. Labour, not capital, is the binding constraint across complex projects.
- Prioritise retrofit, infrastructure‑adjacent and complex commercial work.
- Avoid fixed‑price long‑duration residential unless risk is priced correctly.
- Secure specialist labour early to avoid programme slippage.
For clients:
- Expect longer pre‑construction periods and plan Gateway sequencing early.
- Use phased procurement to maintain optionality.
- Move quickly on viable schemes, contractor capacity will tighten through 2026.
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Expert Verification & Authorship: Mihai Chelmus
Founder, London Construction Magazine | Construction Testing & Investigation Specialist |
