Tuesday, 27 October 2026
Europe’s construction industry is expected to return to growth in 2026, although the recovery is progressing more slowly than previously anticipated as higher financing costs, expensive building materials and economic uncertainty continue to restrict development activity. According to the October 2026 European Construction Outlook published by Bain & Company, most major European markets are showing signs of improvement, but the anticipated recovery in residential construction has yet to translate into a substantial increase in building activity. Infrastructure investment remains an important source of demand, while commercial property development faces a more uneven outlook.
The research forecasts annual growth in European construction activity of approximately 1.5% to 3.5% in real terms over the medium term, supported by housing demand, government infrastructure programmes and investment in selected industrial facilities. However, the recovery is expected to vary considerably between countries and property sectors. Germany is forecast to record construction growth of 2% to 4% annually between 2026 and 2029, compared with 1.5% to 3.5% in the United Kingdom and the Netherlands. France is expected to achieve growth of 0.5% to 2.5%, while Italy faces a more subdued outlook of between zero and 2%.
Residential construction is expected to provide much of the industry’s future growth, reflecting the continuing shortage of housing across European cities. Bain estimates that Europe requires approximately 650,000 additional homes annually over the next decade, beyond the roughly 1.6 million currently being built each year. Despite this demand, affordability remains a significant obstacle to new development. Property prices in several European markets exceed six times average annual household income, limiting purchasing capacity and reducing the number of projects that developers can bring forward with sufficient financial certainty.
The differences between national housing markets are particularly evident in the forecasts for new residential construction. France is expected to record growth of 3% to 5% annually between 2026 and 2029, while the Nordic countries could achieve between 4.5% and 6.5%. Germany and the Netherlands are forecast to expand by 2% to 4%, supported by housing shortages and government initiatives. In contrast, the United Kingdom and Italy are expected to experience slower growth of between zero and 2%, reflecting continued constraints on affordability, development economics and the conversion of planned projects into completed homes.
Commercial property construction faces a more difficult recovery, particularly in the office sector. Bain identifies changing workplace requirements, elevated vacancies in less competitive locations and cautious corporate investment as factors limiting new development. Office construction in Germany is expected to grow by only 0.5% to 2.5% annually between 2026 and 2029, while France and Italy are forecast to record growth of no more than 1%. The findings suggest that developers will continue to assess new office projects carefully, with investment likely to favour properties offering strong locations, modern technical specifications and competitive operating costs.
Industrial development presents a more selective growth opportunity. Although conventional industrial construction is expected to expand at relatively modest rates across much of Europe, demand associated with data centres and digital infrastructure is emerging as an important area of investment. Bain identifies these facilities as a significant source of future construction activity, although electricity network capacity and delays in obtaining grid connections remain obstacles to project delivery. For industrial property investors, access to reliable energy infrastructure may become an increasingly important factor when assessing development locations and long-term asset potential.
Infrastructure construction is expected to outperform several other segments, supported by public investment commitments and long-term national development programmes. Germany’s €500 billion infrastructure fund is expected to contribute to annual sector growth of 3% to 5% between 2026 and 2029, while the United Kingdom is forecast to achieve a similar rate. Italy is expected to experience stronger infrastructure activity during 2026, although growth could moderate as projects supported by its national recovery programme approach completion. The investment pipeline is particularly relevant to contractors, engineering companies and property developers whose projects depend on transport connections, utilities and other public infrastructure.
Construction costs remain another major concern for developers and investors. Although annual building cost inflation moderated considerably after the increases recorded in 2022, Bain estimates that construction costs across the European Union remain approximately 31% above their 2020 levels. Renewed energy market volatility and geopolitical uncertainty have introduced additional pressures during 2026, with construction price inflation expected to reach approximately 3% to 5% during the year. These conditions continue to affect project feasibility, particularly where development budgets were established before the recent increases in materials, labour and financing expenses.
The research also indicates that construction markets in Central and Eastern Europe may follow different trajectories from those in Western Europe. Poland, Romania, Hungary and Slovakia are included in Bain’s wider assessment of historical and projected construction growth, although the report does not provide the same detailed sector forecasts for these countries as it does for Germany, France, Italy, the United Kingdom, the Netherlands and the Nordic region. Its comparative analysis points to continued expansion in Poland and Romania, while Hungary and Slovakia demonstrate different patterns of recovery. For investors operating across Central and Eastern Europe, these variations reinforce the importance of assessing local economic conditions, infrastructure expenditure and the availability of development financing rather than relying on a uniform regional outlook.
Looking towards 2029, the European construction market is expected to improve gradually rather than experience a rapid return to the activity levels anticipated before the recent period of economic disruption. Housing shortages and infrastructure requirements provide underlying support for future investment, but financing conditions, construction expenditure and uncertain economic growth are likely to influence the timing of new projects. For European real estate developers and institutional investors, the outlook points towards a market in which carefully selected residential schemes, infrastructure-related development and specialised industrial facilities may offer stronger opportunities than speculative construction in sectors where occupier demand remains uncertain.
Source:Bain & Company – European Construction Outlook
