Aecom鈥檚 latest London Main Contractor Survey, an annual survey of contractors working in the capital, highlights that despite the market becoming more competitive, it has not become any cheaper. Most contractors are maintaining margins and passing on labour and material price increases in their tender pricing.
Last year, Tier 1 contractors bid for new work at rates not seen since the pandemic in 2022, as the average tender response rate rose to 70%. Tier 1 and Tier 2 combined tender response rate was 64% in 2025, an increase on 2024鈥檚 59% figure.
The tender response rate is the ratio of the number of tenders invited to submit, versus the number of bids actually submitted. It is considered a strong indicator of the levels of competition and work available in the market.
The 2026 report, drawn from a survey of contractors with a combined turnover of 拢6bn, found higher-than-average inflation of 3% (compared with the Treasury鈥檚 2.2% forecast) and increasing costs for both skilled and unskilled labour as key factors driving the dip in confidence.
The research also found that the rising demand for data centres is straining the already limited availability of mechanical, electrical and public health (MEP) subcontractors. This is driving up prices and competition and is leading some contractors to develop in-house MEP capacity to support projects. Another key trend for 2025 was the adoption of artificial intelligence (AI), with contractors reporting increased use of the technology for tendering and estimating.
鈥淚nflation and labour shortages continue to hamper an increasingly competitive London construction market,鈥� said Brian Smith, Aecom鈥檚 head of cost management and commercial. 鈥淭his year鈥檚 survey shows contractors are balancing the need to secure work with managing risk exposure. As competition intensifies, some are prepared to take on greater risk, such as committing to long programme durations, to win work, while others are prioritising lower-risk opportunities with trusted partners. The challenge for 2026 will be maintaining stability by strengthening the industry鈥檚 resilience and labour capacity ahead of what is expected to be a dynamic 2027.鈥�
Smith continued: 鈥淥ne growing trend we鈥檝e identified this year is the trialling of AI by contractors. If AI becomes more deeply integrated in their operations, the potential benefits are likely to accelerate rapidly as contractors look for new ways to drive efficiencies.鈥�
Looking ahead, the survey respondents have a more confident outlook for the longer term. Tier 1 contractors report healthy order books for 2026, from a mix of sectors rather than a reliance on any single market. Orders in London were above the long-term average in the final quarter of 2025, with growth across all sectors offsetting the year鈥檚 overall decline in residential activity.
Evidence points to the London construction market diversifying away from residential projects, shifting focus to commercial, refurbishment, public sector, life sciences, and infrastructure projects instead, Aecom said.
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