The latest survey of developers and contractors shows that rather than a weak market with firms chasing all opportunities, the contracting sector continues to be selective as appetite for risk reduces amid global uncertainty.

Education remains the standout sector for tender opportunities for a fourth consecutive quarter, driven by a surge in SEND schemes and ongoing Department for Education programmes tackling the ageing school estate.

Energy, infrastructure and defence are also providing a dependable stream of work, helping to stabilise workloads as private housing and commercial activity remains subdued.

Data centres continue to punch above their weight, with hyperscale and AI-led demand fuelling a strong pipeline of complex, high-value projects.

But the defining feature of the current market is contractor discipline, according to the cost consultant’s latest market survey of sentiment.

Andy Ellis, UK MD at Gleeds, said: “The conflict in Iran is already affecting construction costs and confidence, with the sector particularly vulnerable if prices continue to rise and we experience a slump in demand.

“Contractors are stepping back from risk, clients are seeing reduced appetite to tender, and the market is becoming more cautious. We expect to see greater use of fluctuation clauses and more defensive commercial strategies as volatility persists.”

Gleeds found that 85% of firms said they or their supply chain had declined tenders during the quarter, reflecting a widespread shift towards only bidding work that can be delivered with confidence.

Schemes are being turned down where labour cannot be secured, supply chains look fragile or risk allocation is unclear, as contractors focus on protecting already thin margins.

One respondent pointed to reduced competition, noting firms were “either folding or restructuring and lowering their targets”, creating short-term openings but signalling deeper instability across the sector.

Risk appetite remains subdued, with 57% of respondents reporting a reduced willingness to take on risk, only marginally improved from late 2025.

This caution is feeding into tender pricing, with contractors building in higher risk allowances, pushing for longer programmes and demanding tighter scopes before committing.

Margins are holding but remain tight, with typical main contractor overhead and profit levels sitting just above 6% for a third consecutive quarter on projects around £10m-£30m.

Nearly 80% of contractors still reported labour rate increases, underlining that skills shortages persist and that the recent easing in labour pressures reflects softer demand rather than improved supply.

Material costs have also steadied, but Gleeds warns the market remains highly exposed to external shocks, particularly in energy-intensive products such as cement and steel, where pricing can quickly reset to higher levels.

Tender price inflation has settled into low to mid single digits for 2026, but Gleeds warns the risk lies in sudden spikes rather than sustained rises.