What does 2026 hold for Built Environment & Industrials?
In our final thought piece in December, we looked back at 2025 in the UK Built Environment & Industrials sector. Now that we’re back after the break, it’s time to look forward to what 2026 may bring.
Macro Trends
The Construction Products Association (CPA) recently revised its post-budget forecasts downward, projecting 1.1% growth in 2025 and 2.8% in 2026—down from 1.9% and 3.7% previously. Despite this muted outlook, infrastructure remains a bright spot, with output expected to rise by 4.4%. Key drivers include water and sewerage upgrades and green energy distribution, supported by record investment plans.
Infrastructure & Utilities
Ofwat’s PR24 final determinations have unlocked approximately £104 billion for AMP8 (2025–2030), targeting storm overflow reduction, leakage control, and resilience. This will create opportunities across compliance, monitoring, asset maintenance, and smart technologies. These investments position water infrastructure as a critical growth area for mid-market PE.
Housing
Questions linger over whether the Labour government can deliver on its pledge of 1.5 million new homes by 2030. Historical trends suggest caution, but any acceleration in planning reform could surprise the market.
Data Centres
Meanwhile, data centres remain a standout growth story, driven by AI adoption and digital demand. Major commitments—such as Equinix’s £4 billion plan to double its UK footprint—signal continued investment in core infrastructure. For mid-market PE, the focus will likely shift toward the supporting value chain: specialist contractors, testing and compliance providers essential to data centre construction and operation.
AI & Value Creation
AI is emerging as a key lever for operational efficiency, revenue visibility, and margin enhancement across portfolio companies. This is particularly relevant for firms holding assets longer than anticipated, as they seek new avenues to boost returns.
Defence
Defence is another sector to watch. With Labour committed to raising defence spending to 2.5% of GDP by 2027 and geopolitical tensions persisting, capital flows into defence primes, tech start-ups, and adjacent service providers are expected to grow. PE interest will likely centre on niche suppliers and aerospace subsectors.
Compliance-Led Markets
Beyond defence, fragmented, compliance-driven markets—such as fire safety and testing, inspection, and certification (TICC)—offer scope for both organic and acquisitive growth. Infrastructure services and water-related businesses should also attract attention.
Tech-Enabled Built Environment
Despite subdued construction growth, technology adoption is accelerating. From digital twins and compliance tracking to security and energy monitoring systems, tech-enabled solutions across the RIBA stages present compelling investment opportunities.
Renewables
While renewables remain an area of interest for mid-market investors, deal flow has historically been constrained by scarcity of quality assets. However, given initiatives such as GBE’s EEUK programme, which is set to invest £1bn into the energy sector supply chain, that could be about to change. £300m has been allocated to Offshore wind, with the aim of tackling key component bottlenecks. Beyond this, substantial investment in EV infrastructure is still required, along with solar spending, where GBE has also announced investment of over £250m.
To discuss any of these themes in more detail, please contact:
Matt McNally
mmcnally@armstrong-ts.com
+44 7894 736 523