After the challenges of the pandemic and its immediate aftermath, many people would have hoped that 2024 would prove more predictable. But, between stubbornly high cost inflation, interest rates staying higher for longer, and political change, it’s been another 12 months of change for the construction sector.

Next year is unlikely to be any different, as the new government begins to implement its plans and the economic landscape continues to shift. There have, at least, been some positive indicators in recent data coming out of the construction sector – particularly from commercial activity in the latest PMI figures.

So, as we move into 2025, there are five themes that are likely to shape the construction sector in different ways during the year ahead – each of which presents its own opportunities and challenges. 

Increased public sector capital spend

It’s no secret that 2024 has been a challenging year for public finances. That’s had a direct impact on the amount of capital available for projects – in England, for example, just 23 of the 500 schools that were planned for delivery over the next 10 years as part of the government’s School Rebuilding Progamme have been completed.

While the pipeline may, understandably, remain restricted, it is hoped that the commitments made in the UK government’s first Budget will result in an increase in funding for capital projects. Any increases in capital spend should also flow through to devolved government budgets.

We may not know how exactly that will be allocated until the first quarter of 2025, but we would hope to see an increase in education and healthcare projects, as well as a more general increase in spend on the country’s social infrastructure.

A rise in private sector activity

Private sector development has also been challenging, but for different reasons. Macroeconomic conditions combined to make many new-build schemes unviable, putting a brake on commercial projects and much-needed new housing – the latter compounded by Scotland’s rent cap policy.

However, the economic landscape is changing. Add to that huge pent-up demand for housing and an office market going through a vast transformation, and conditions look more supportive for private sector development in 2025 – both in housebuilding and in commercial property.

More refurbishment and repurposing

Around 80% of the buildings we have today are expected to still be standing in 2050[1]. Rightly, that’s seen a big focus on the energy performance and reuse of our existing building stock over the past year – a trend we expect to continue into 2025, as net zero policies at a national, local, and corporate level come further into focus.

Secondary office stock is a particular point of interest. As occupier demand is increasingly concentrated on the best and most ESG-friendly schemes, there are large amounts of space that need to be refurbished or repurposed.

While there are some commercial-to-resi projects, these are typically more difficult to undertake because of floorplate sizes, design issues, and locational challenges. However, in London and Edinburgh in particular, we have seen an increasing focus on office-to-hotel conversion, with seemingly insatiable demand from tourism in both cities. Our pipeline suggests there is a lot more of that to come next year.

Public-private sector collaboration for changing town and city centres

The changes we’ve seen since the end of the pandemic to a variety of sectors are having a noticeable effect on our town and city centres. The high street is undergoing an evolution from a predominantly retail zone to something much more, incorporating a greater share of leisure, tourism, and elements of residential use.

From the conversations we’ve had, there is still a lot of interest and intent among decision-makers in town planning to create communities that have all the amenities they need within an easy distance. Part of that will be about encouraging more city centre living – Glasgow, for example, has a target of reaching 40,000 people residing in the city centre by 2035, double where it was pre-pandemic.

Delivering the right balance of mixed-use city centre regeneration and access to amenities will be key. But so too will close collaboration between the public and private sectors. Some of that is happening already, but more will be required in 2025 to solve the challenges facing our town and city centres.

Different approaches to projects

The tight funding conditions of the past couple of years have led to developers exploring new ways of driving value – especially when it comes to how construction works are procured. The traditional approach of one contractor being appointed for the full length of a build is becoming less common, particularly when the re-use of existing buildings forms a core part of the project.

Instead, commercial developers and funders are becoming more interested exploring a different approach, focussed on allocating and managing works and the related risk in distinct packages across the project. This could mean, for instance, treating the enabling works, shell and core, and fit-out work as distinct phases and bringing in specialist contractors to carry out each.

We expect to see that trend continue to increase in 2025 and beyond, as cost pressures require innovative delivery models to support project viability.

• Zander Muego is director at Thomas & Adamson, part of Egis Group