LONDON—October 27, 2026—Construction in Europe is set for gradual recovery through 2029, with 2026 improving last year’s outcome and positive growth expected across most of the region, but recovery in new residential construction, after years of structural undersupply, is taking off more slowly than anticipated, Bain & Company forecasts in its new Building Blocks Construction Indicator, released today.

As Bain forecast last year, the European construction market stabilized during 2026 with stronger conditions and brighter prospects, although it has not yet fully rebounded. Among key factors contributing to the gradual revival of the construction industry, Bain points to an upturn in GDP growth and persistent infrastructure spending by governments. But while the current trajectory is upward, persistent headwinds – increased inflationary pressures, heightened geopolitical and macroeconomic uncertainties and, most recently, the European Central Bank’s June and September 2026 increases in eurozone interest rates – are weighing on the market, leading to a more gradual recovery.

Looking at new residential construction, France, the Nordics and the Netherlands are recovering, while Germany and the UK are in a transition. Italy, meanwhile, remains an outlier, as the incentive phase-outs that spurred demand in prior years take time to course-correct. Bain suggests that a full, broad-based resurgence of pent-up demand before 2029 is unlikely. Its report also cautions that the broader outlook for European construction of a continuing, gradual recovery is also contingent on the absence of further shocks, with the pace and scale of recovery depending on how and when the remaining headwinds ease.

“As we forecast in 2025, Europe’s construction market is starting to gain traction, and the weakness of the last several years has abated. But the unlock of accumulated demand is taking off somewhat more slowly than we had hoped,” said Marc Jeker, partner in Bain & Company’s Infrastructure, Construction and Building Products practice. “The direction of travel remains positive thanks to sustained infrastructure spending and pent-up private sector demand that’s now converting into activity. Government intent is real, and activity indicators are moving in the right direction, contributing to keeping medium-term growth fundamentals intact – anchored by residential new construction, infrastructure momentum, and data centers. So, we continue to see an ongoing revival, absent a further unanticipated macro shock.

“The key question for companies is how to successfully plan for a gradual revival rather than a swift recovery. For that, they should closely track the indicators that show which handbrakes are releasing, such as permits, starts and order intake, while also maintaining scenario plans for further shocks to interest rates, energy costs and geopolitics, and look at growth pockets within and beyond Europe.”

Nordics and Netherlands lead the near-term recovery, while Germany and the Nordics set the pace over the mid-term

The Nordic countries and the Netherlands are expected to lead Europe’s near-term recovery, with expected growth of 1.0% to 3.0% in real terms between 2025 and 2026, the highest among the key markets. In the Nordics (Norway, Sweden, Finland, Denmark), overall construction activity is also set to increase by a compound annual growth rate (CAGR) of 2.0% to 4.0% between 2026 and 2029, with new residential construction leading (4.5% to 6.5%), supported by government housing targets in Norway (130K homes by 2030) and Sweden (100K by 2035), as well as easing mortgage conditions in Finland. For the Netherlands, Bain projects a growth rate (CAGR) of 1.5% to 3.5%, skewing to new residential construction, underpinned by pent-up demand, but constrained by nitrogen regulation limiting permit approvals and by grid congestion stalling construction even where permits are secured.

The UK is set to see growth of 1.5% to 3.5% over the period, driven by infrastructure (3.0% to 5.0%) and residential renovation (2.0% to 4.0%), while a recovery in new residential construction (0.0% to 2.0%) is expected to be gradual through 2029, with affordability pressures a key constraint, Bain forecasts.

In Germany, Bain’s analysis finds that construction activity is expected to grow at a 2.0% to 4.0% CAGR in the medium-term, the strongest such growth among the key European markets alongside the Nordics. As with the UK, growth is set to be driven by infrastructure, in this case supported by the €500B special fund, as well as by residential, supported by pent-up demand, though the pace and scale of the residential unlock remains conditional given persistent affordability constraints.

France meanwhile will see only moderate construction sector growth, around 0.5% to 2.5% (CAGR) until 2029, Bain projects. The French new residential building segment is set to lead the way with 3.0% to 5.0% projected growth, underpinned by government initiatives such as the January 2026 Housing Recovery Plan. But a substantial slowdown in infrastructure is also visible, with very limited growth 0.0% to 1.0% over the next three years, given post-election budget consolidation and France’s 3% GDP deficit target by 2029.

Bain’s analysis concludes that Italy will be the European construction market with the weakest prospects over the period, with a forecast CAGR of 0.0% to 2.0%, as the incentive phase-outs that spurred demand in prior years take time to course-correct. Growth is set to be led by infrastructure, Italy’s strongest segment at 1.0% to 3.0%, although decelerating as the pipeline of the National Recovery and Resilience Plan (PNRR) thins after the August 2026 deadline, with the deceleration largely offset by residential acceleration.

Activity indicators in new residential construction are moving in the right direction

Bain’s report finds that early-stage activity indicators for new residential construction (permits, starts and order intake) are turning upwards in most markets, although the improvement is not yet broad-based and has yet to translate into completions. In Germany, permits, order intake, and order backlog are all on the upswing, albeit from a very low base. In France, permits and starts are gaining momentum, while in the UK, starts are improving, yet fewer completions keep the near-term outlook broadly flat.

A persistent delivery gap is holding back Europe’s housing recovery

Bain’s analysis underlines that pent-up demand for housing in the region is structural, with Europe needing around 650K additional dwellings per year for a decade, on top of the ~1.6M built annually today. While government intent is also strong in European markets, with ambitious programs for social housing construction in Germany, UK or France, a wide delivery gap persists despite early signs of an uptick in activity. In the UK, net additions of ~209K homes in 2025 were 43% below the government’s annual target of 370K, while in France, delivery remains below the government’s target of 400K homes per year despite starts rising ~28% year-on-year in the first half of 2026. In Germany, completions are expected to fall ~10% in 2026, while permit expiry in 2025 was the highest since 2002.

Handbrakes on affordability, costs, energy prices and interest rates are tempering the recovery

On affordability, property-price-to-income ratios above 6x in key European markets are continuing to keep buyers on the sidelines, Bain observes. With cautious household sentiment and a savings rate of ~14.3%, the highest outside the pandemic in three decades, this handbrake is expected to be released only partially, Bain’s report finds. Construction costs and financing conditions add to the pressure: costs remain ~31% above 2020 levels, and the 2026 outlook has shifted toward renewed upward pressure, with energy prices projected to surge by about 24% in 2026 following the escalation of Middle East conflict. At the same time, the ECB’s interest rate increases in June and September 2026, with the Bank of England holding for now but likely to follow, are adding pressure on financing costs. With new residential construction being the most cyclical segment, this volatile environment of rate hikes, inflation and geopolitical uncertainty could still pose a threat to the outlook, Bain cautions.

Segment outlook: patchier infrastructure growth, subdued office activity and uneven residential progress

Infrastructure growth is expected to become patchier through 2029, with Germany and the UK on the clearest growth path, at a compound annual rate of 3% to 5% in both. In the UK, growth is supported by the NISTA pipeline under the National Infrastructure and Service Transformation Authority, which includes both private and public investments. The Nordics are projected to grow between 2.0% and 4.0% over the period, and the Netherlands between 1.5% and 3.5%, while in Italy, Bain expects strong near-term growth to moderate after the August 2026 deadline of the PNRR, to a 1% to 3% CAGR. In France, growth is expected to be limited, to only a 0.0% to 1.0% CAGR.

Non-residential is broadly the slowest-growing segment, Bain reports. Office construction is held back by elevated vacancies in secondary locations, hybrid working models, falling permits, prolonged interest rate headwinds and cautious occupier sentiment, with selective growth only in prime locations, while data centers are the standout industrial growth pocket, though grid connection constraints remain a binding execution challenge. The UK is expected to lead office construction activity in 2026-2029, with a 1.5% to 3.5% CAGR, while the Nordics will grow 1.0% to 3.0%, Germany 0.5% to 2.5%, the Netherlands 0.0% to 2.0%, and both France and Italy are forecast to have the slightest increases, of 0.0% to 1.0% CAGR.

Residential new construction remains the primary mid-term growth engine for European construction through 2029, driven by structural undersupply, shrinking household sizes and government policies, with growth of 4.5% to 6.5% forecast in the Nordics, 3% to 5% in France and 2% to 4% in Germany, and likewise in the Netherlands, where an April 2026 taskforce re-affirmed the annual target of 100K homes. In the UK and Italy growth is expected to be gradual, at 0% to 2%.

Media contacts 

For the full media pack detailing findings of Bain’s Building Blocks Construction Indicator, questions, or to request an interview, please get in touch:

Gary Duncan (London) — Email: gary.duncan@bain.com

Joaquín Sanz (Madrid) — Email: joaquin.sanzfernandez@bain.com

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