5 Key Challenges Facing UK Construction in 2025

As we approach 2025, the UK construction sector is expected to enter a period of optimism. Increased project starts, advancements in technology, and supportive government policies are expected to pave the way for significant growth and transformation. It comes as welcome news but nevertheless not without scepticism after a period of economic and political uncertainty. Although the UK construction sector has performed better than expected, with promising levels of activity, 2024 has arguably been its most challenging year yet. New build output in residential, commercial, and industrial sectors has been constrained by sluggish economic growth, high interest rates, and rising labour costs, all of which have hindered short-term growth.

So, with 2025 on the horizon and a positive outlook ahead, what challenges can we expect to persist or arise? And, how can construction firms overcome these challenges?

Post-Grenfell reforms, including stricter building safety regulations, are expected to continue evolving. Construction firms will face increased scrutiny on compliance, impacting project timelines and costs. Additionally, new planning reforms aimed at speeding up project approvals could bring both opportunities and challenges, as firms adapt to faster processes and potentially tighter deadlines. So, what specific regulations should construction firms be mindful of?

The Procurement Act, which received royal assent in October 2023, aims to overhaul public procurement law by simplifying processes and increasing opportunities for small businesses. Initially scheduled for implementation on 24 October 2024, the new Labour government has delayed its enforcement to 24 February 2025. This legislation is expected to significantly influence procurement practices within the construction industry. From February 2025, public procurement agencies will be expected to adopt a centralised digital platform for publishing contract opportunities, ensuring greater transparency and accessibility for bidders. They will also need to prioritise social value outcomes, including sustainability and community benefits, when awarding contracts. Additionally, agencies will be required to simplify processes, break larger projects into smaller lots to encourage SME participation, and enforce prompt payment terms to support smaller subcontractors.

From April 2024, an enhanced building safety regime was introduced in response to the Grenfell Tower Disaster. Introduced for higher-risk buildings – those with seven or more floors and more than two dwellings – the regime, administered by the Building Safety Regulator, means that private sector building control can no longer supervise work on these higher-risk buildings, and former ‘approved inspectors’ ceased to have any legal function after 1 October 2024. These changes will continue to affect construction projects in 2025, necessitating strict compliance with the new safety standards.

The UK government set ambitious targets to reduce greenhouse gas emissions in the built environment by 50% by 2025. This goal is part of the broader Construction 2025 strategy, which also aims to reduce construction time and costs. To meet this objective, the industry is expected to adopt more sustainable building practices and materials, impacting project planning and execution. So, as we approach 2025, where does the industry stand with meeting this target? And what does it mean for construction firms next year?

A Parliamentary Publication highlights that the construction sector has made notable strides in reducing greenhouse gas emissions, yet achieving a 50% reduction remains a significant challenge. Although the concrete and cement industry has surpassed the overall UK economy’s progress by achieving a 53% reduction in absolute CO2 emissions since 1990, the challenge lies within embodied (building materials and construction processes) carbon emissions. The publication outlines that current government policies lack comprehensive measures to assess and mitigate these emissions, impeding further progress.

For construction firms, this means that the pressure to adopt more sustainable practices is only set to increase, especially as the 2025 target approaches and gaps in progress become more evident. While progress has been made in areas such as reducing operational emissions from buildings, the spotlight is shifting to embodied carbon, which remain a significant hurdle.

Firms will need to prioritise low-carbon materials, such as recycled steel and sustainable concrete alternatives, and implement efficient construction methods like modular or off-site building to minimise emissions. They may also face increased scrutiny from clients, investors, and regulators demanding transparency and measurable progress in carbon reduction.

However, the lack of comprehensive government measures to address embodied carbon means that construction firms have led the way by setting their own standards and adopting voluntary frameworks, such as BREEAM or LEED certifications. This could result in higher upfront costs but also positions firms as industry leaders, potentially giving them a competitive edge.

A skilled labour shortage in the UK construction industry has been a persistent issue, and by 2025, this challenge is expected to intensify as the catalyst of wage inflation. It is estimated that the industry needs 937,000 new recruits over the next decade to meet growth projections and bridge the shortage of skilled specialists in technology and digital disciplines – hence the term ‘missing million’. The challenge poses significant risks to the industry, as analysts warn that ongoing skills shortages may limit future output and lead to upward pressures on wages to meet increased demand, undermining project efficiency and leading to delays through reduced productivity.

A few critical factors contribute to this problem:

Less than a quarter of UK construction workers are under 25, resulting in an aging workforce and highlighting the need to attract younger entrants into the industry. This demographic imbalance leads to a net loss of skilled professionals, exacerbating labour shortages. The shortage is particularly acute in skilled trades like carpentry, bricklaying, and plumbing, where years of experience are vital to maintaining quality and efficiency. This trend is creating a growing gap as experienced professionals exit the industry faster than new workers can replace them.

There has been a notable decline in apprenticeship enrolments, resulting in fewer trained individuals entering the sector. The Construction Industry Training Board (CTIB) estimates that over 50,000 new workers are needed annually over the next five years to fulfil industry requirements. Figures compiled by the Department for Education (DfE) show that 24,530 workers started construction, planning and the built environment apprenticeships in 2022/23, a 6% drop compared to the previous academic year. Despite this increase, the number of apprenticeships remain above pre-pandemic levels, indicating a sustained interest in careers in construction.

For construction firms, the Apprenticeship Levy has proven to be burdensome, particularly for SMEs and often discouraging participation entirely. Stakeholders within the construction industry have criticised its rigid framework, which limits the use of funds to specific training programs while excluding vital costs like apprentice wages or tailored upskilling initiatives. Amongst other issues including administrative complexity accessing funds, the levy’s lack of alignment with industry-specific needs has left many construction firms unable to address pressing skills shortages effectively.

Construction is often perceived as offering limited career progression and being predominantly manual labour-intensive. Research commissioned by Deconstruction highlights a number of misconceptions and a growing image problem for the industry, where 77% of UK full-time students between ages of 18 and 24 would not consider a career in the construction industry. The research also found that the wider perception of jobs within the industry are dirty (52%), unsafe (25%), and lacked requiring educated workers (43%).

It can be safely assumed therefore the growing image problem deters potential entrants, particularly among women and younger individuals, leading to a less diverse and smaller talent pool.

Technology and innovation are poised to significantly transform the UK construction sector in 2025, driving efficiency, sustainability, and competitiveness. However, research from Munich RE suggests UK construction workers were amongst the lowest percentage of respondents who expect their companies to increase investment in technology in categories that include Building Information Modelling (BIM), energy efficiency and renewable energy, and VR and augmented reality. Compared to a global survey of construction professionals, 97% expect to see increased digital investment by 2026. However, most of these are now standard practice, with 73% of UK construction processes already utilising BIM. So how is tech set to transform the industry?

While BIM has been available for many years, its adoption remains inconsistent across the UK construction sector. SMEs, which form a large part of the industry, are found to be struggling to implement it due to high costs to integrate, lack of training, and limited resources. By 2025, the push to close this adoption gap will be critical for ensuring smaller firms can compete. Even more so as regulatory pressures and clients demand more advanced uses of the technology. Mandates for higher BIM levels are set to shift from BIM Level 2 (commonly used today) to Level 3 and beyond, incorporating full lifecycle and operational data, is still a work in progress for many firms. In 2025, the focus will shift to how BIM integrates with cutting-edge technologies like AI, Smart Sensors, and Digital Twins.

Additionally, global standards will add further pressures to the sector, as international construction markets set higher benchmarks for digitalisation, and the UK’s ability to compete hinges on firms advancing their use of BIM.

While Digital Twin technology offers immense potential for improving project efficiency and sustainability, it poses sizable challenges for the UK construction industry. High implementation costs and the need for extensive IoT infrastructure make it difficult for smaller firms to adopt, potentially creating a divide between industry leaders and lagging SMEs. With that said and considering other tech gaps between enterprises and SMEs, will be interesting to see whether this will impact the goals of the Procurement Act where SME participation is considered.

Another critical barrier is how this coincides with the skills gap. Many construction firms will lack the technical expertise needed to harness the benefits of Digital Twins. Without investment in training and workforce development, the potential of this tech risks going unrealised, leaving the sector vulnerable to global competitors who are quicker to adapt. It is especially pressing with the shortage of skilled specialists in technology and digital disciplines.

Nevertheless, Digital Twins technology has the potential to transform the UK construction sector by enabling precise project planning, real-time monitoring and lifecycle asset management. By creating virtual replicas of physical sites, firms can optimise efficiency, reduce errors, and minimise embodied carbon emissions.

As the industry faces increasing pressure to improve efficiency and transparency, blockchain technology offers a solution with far-reaching benefits. While adoption is still in its early stages, its potential positions it as a transformative force for the future of construction. Blockchain technology has several promising applications in construction, primarily aimed at improving transparency, efficiency, and collaboration. One key use is in supply chain management, where blockchain can track the origin and movement of materials, ensuring ethical sourcing and reducing fraud. Additionally, blockchain enables smart contracts, which automatically execute payments or enforce project milestones once predefined conditions are met.

However, the adoption of blockchain technology in construction faces several hurdles. High implementation costs for infrastructure and training are likely to deter firms from investing. The construction sectors fragmented nature also complicates integration, as aligning diverse stakeholders and systems is difficult. Additionally, and as we’ve mentioned multiple times, the skills gap to facilitate the tech into practice. Overcoming these barriers will require collaboration, investment, and education. By 2025, firms that invest in blockchain could gain a significant edge, particularly in large-scale, complex projects and those commissioned from public authorities.

The UK construction industry is increasingly adopting circular economy principles, aiming to reduce waste and enhance sustainability. Driven by the sector’s substantial environmental impact and the UK’s legally binding commitment to Net Zero by 2025, offers significant economic opportunities. For example, adopting circular economy practices is estimated to contribute €1.8 trillion for the EU between 2015 and 2030. In the UK, embracing these principles can lead to cost savings, reduced material consumption, and lower carbon emissions. Much of the technology discussed already – BIM, Digital Twins, and Blockchain Technology – directly support circular construction practices. But what else is driving this sustainable force in 2025?

Government policies are reinforcing this transition. Since 2022, The Greater London Authority required circular economy assessments for major development applications, a mandate expected to expand nationwide. Such regulations are compelling construction firms to integrate circular practices into their operations, where the key requirements are:

Design for Reuse and Adaptability: Developers must demonstrate how buildings will be designed to allow for disassembly, reuse, or adaptation in the future, reducing demolition waste and prolonging the lifecycle of materials.

Material Selection: The GLA encourages use of reclaimed or recycled materials and requires transparency about sourcing to ensure a lower environmental impact – which is where Blockchain comes in.

Waste Reduction Targets: Developers must quantify the reduction in construction and demolition waste, aiming to recycle at least 95% of excavation materials and 99% of construction and demolition materials.

Monitoring and Accountability: Circular Economy Statements are reviewed by local authorities to ensure compliance. Developers may also be required to provide updates during the construction phase to confirm adherence to their commitments.

These requirements can be expected to influence the entire supply chain, from architects to contractors. It’s a positive move towards the UK construction industries commitment to sustainability but nevertheless, will likely take some time to implement. However, there are already initiatives like material exchange platforms providing a route for stakeholders to source and dispose of approved materials.

Sustainability is a critical metric for investors and stakeholders, driving widespread interest in circular economy principles in construction. Increasingly, investors and developers assess contractors on their ESG performance as part of their decision-making process, favouring firms with strong commitments to reducing waste and carbon emissions. Access to green financing options, such as sustainability-linked loans and green bonds, provides an added incentive for UK construction companies to bolster their commitments. In 2023, UK green bond issuance rose by 77.7% from $18.4 billion in 2022, significantly outpacing the global average growth rate.

The UK construction sector has faced longstanding challenges with cashflow management and a notable number of insolvencies. Even large enterprises are at risk, as the industry took a devastating turn over the collapse of ISG in September. As of late 2024, construction firms represented 16.2% of all insolvencies in England and Wales, with over 4,260 companies becoming insolvent in the year to September 2024. This number reflects the industry’s vulnerability, exacerbated by persistent challenges like cash flow issues, high interest rates, labour costs, and this years reduced public-sector spending. It means that these factors are likely to increase scrutiny for contractors on their financial stability.

As we approach 2025, here’s what we can expect to impact the industry:

The Autumn Budget brought mixed outcomes for the construction industry. While increased investment in new infrastructure and a sustained focus on housing are positive developments, higher taxes, such as the rise in employers’ national insurance contributions and National Minimum Wage rates, are expected to heighten financial pressures on SMEs. These small businesses, which are crucial to the sector and its supply chain, are likely to find it increasingly difficult to navigate these additional costs.

The demand for skilled workers in construction has outpaced supply, resulting in increased competition for qualified personnel. This imbalance has driven up wages as firms strive to attract and retain talent. For instance, construction wages rose by 4% in July 2024, reflecting the sector’s efforts to secure necessary skills.  The escalation in labour costs directly affects the cashflow of construction companies, particularly those operating on fixed-price contracts that cannot easily absorb additional expenses. Tight profit margins are further compressed, leading to financial strain. The combination of wage inflation and existing financial pressures is likely to exacerbate this trend. As firms struggle to manage increased labour costs, cashflow issues may intensify, leading to a higher incidence of insolvencies in 2025.

The UK construction sector faces a pivotal year in 2025, with a promising outlook on investment in infrastructure, increased project starts, and advancements in technology. However, these challenges could redefine trajectory. Stricter regulations, such as the Building Safety Act and Procurement Act, will demand greater accountability and adaptability from firms, while the ongoing skilled labour shortage threatens to inflate costs and disrupt project timelines. Technology adoption, including tools like BIM and Digital Twins, remains uneven, creating a divide between larger firms and SMEs struggling to keep pace. Meanwhile, sustainability pressures require significant investment in circular construction practices to meet ambitious net-zero goals, all amidst rising costs and financial strains driven by wage inflation, high interest rates, and cashflow pressures. These interconnected challenges underscore the need for strategic planning to navigate the future of construction.

So, when it comes to strategic planning, what can be considered? Construction firms must evaluate their priorities and adopt a proactive approach to tackle these challenges. However they decide to do this, B2B marketing can be used to alleviate or even overcome these challenges entirely.

As a B2B marketing agency with a proven record of helping UK construction companies overcome complex challenges since 2008, we’ve outlined some brief tactics construction firms should consider.

To tackle regulatory challenges, marketing can highlight a firm’s agility to responding to regulatory changes. We recommended producing case studies that showcase successful projects completed under strict regulatory requirements, demonstrating the firm’s ability to adapt and deliver quality results. These case studies should highlight specific challenges faced, the innovative solutions implemented, and the positive outcomes achieved.

The skilled labour shortage demands a focused employer branding strategy. By presenting construction as a modern, innovative, and rewarding career path, firms can attract younger, more diverse talent. Showcasing technology-driven projects, career progression opportunities, and inclusive work environments through digital channels and events can reshape perceptions and draw new entrants to the industry.

Although not considered a challenge for firms who can adopt technology but should certainly be mentioned in construction firms marketing collateral. Content-driven strategies that educate audiences about their tech capabilities can open doors to collaborative opportunities and secure high-value contracts.

Sustainability messaging also plays a key role. As clients and investors increasingly prioritise ESG performance, marketing campaigns can spotlight circular construction practices, carbon reduction initiatives, and sustainable material use. Firms that communicate these efforts effectively will not only meet expectations but gain a competitive edge in securing new projects.

Lastly, marketing can play a pivotal role in promoting transparency in financial reporting. Clear and consistent communication about financial practices can build trust with clients, investors, and stakeholders, reassuring them of a firm’s stability and reliability. Highlighting robust financial management through targeted campaigns can attract high-value clients and strengthen business relationships.

While these tactics provide a universal approach to help alleviate the challenges the UK construction sector faces in 2025, we appreciate that each firm will have its own unique set of circumstances, goals, and constraints. Factors such as company size, market, available resources, and specific operational challenges require tailored strategies to ensure maximum impact. We, at Beach Marketing – a specialist Construction Marketing Agency – offer solutions designed to align with construction firm’s objectives to help overcome complex challenges, differentiate themselves in a competitive market, and drive measurable growth.