Construction industry
Delivery risk is rising across markets. Power availability, grid congestion, and permitting delays are now among the most significant constraints.
Europe’s construction industry is expected to recover modestly in 2026, supported by public investment in transport, energy, renewables, and digital infrastructure, while residential construction remains the weakest segment. Recent national budgets are placing greater emphasis on transport, energy, housing and defence, supporting construction activity despite wider economic uncertainty.¹
Labour shortages are structural, persistent, and increasingly visible in cost, programme and productivity.
Retirements now exceed new entrants across all EU member states, weakening the link to economic cycles. Vacancy rates have eased since 2022 but remain elevated. The industry relies heavily on non-EU workers, with demand set to increase through renovation and replacement programmes. Low representation of women in the industry contributes to the labour gap, while falling productivity and high levels of undeclared work continue to obscure its true scale. Installation trades, particularly electricians, and plumbing and HVAC engineers, face the greatest pressure as demand, linked to the green transition, accelerates.
Carbon regulation is beginning to shift construction economics.
From 1st January 2026, the EU Carbon Border Adjustment Mechanism applied direct carbon costs to imported materials. For emissions-intensive steel and aluminium, this could exceed 30% of product value. Given carbon price volatility, tracking carbon exposure will become a critical consideration in contracts and supply chain strategy.²
Construction output and inflation by country
Construction costs across Europe are expected to stay elevated in 2026, with limited potential for moderation.
While inflation eased in 2025, geopolitical tensions, trade disruption and supply side constraints continue to present upside risk. The EU tariff framework offers some stability, but weaker growth and global uncertainty still threaten investment and delivery. Commodity inputs remain volatile, with copper, aluminium, diesel and cement driving net inflationary pressure despite softer steel prices. Strong infrastructure and data centre demand, combined with labour shortages and rising compliance costs, is likely to sustain above trend cost pressure into 2027.
The below are interactive comparison charts for both construction output and inflation across select countries in Europe.
Sectors overview
Data centre demand remains strong, but is constrained by power availability grid congestion and slow permitting.
Colocation capacity reached 7.6 GW in 2024 and is forecast to grow to 23.8 GW by 2031. This growth is now driven by hyperscale and AI campuses, with higher rack densities and liquid cooling becoming standard as AI reshapes power and facility design. This is redrawing Europe’s data centre map, concentrating training in power-rich regions such as the Nordics and Southern Europe, while inference demand intensifies near major cities. Hyperscale owner‑occupied capacity is also accelerating, growing at a forecast CAGR of 14% and estimated to reach around 6.9 GW by 2031.
According to the European Data Centre Association, renewable sources now supply circa 90% of energy demand for all data centres, and new reporting requirements under the Energy Efficiency Directive will increase transparency and compliance from 2026. Overall, power strategy is critical, with client-owned substations, bring your own power models, and long-term agreements becoming standard.³
Delivery models are adapting to pressure on labour and programme. Modular electrical systems are widely used with UPS, low voltage and switchgear delivered in prefabricated pods. Refurbishment to true AI-ready standards remains limited, with demolition and rebuild often required due to insufficient floor loading, inadequate floor‑to‑ceiling heights, and incompatibility with high‑density racks. New cable landings, cloud region commitments, and renewable capacity have lifted investor confidence, strengthening demand in Southern Europe.
The Nordics remain one of Europe’s most important data centre growth regions and account for over 18% of the total European data centre construction pipeline by value. The market has moved into a new phase dominated by large hyperscale and AI training campuses, often delivered through multi-site programmes, backed by long term capital commitments. However, remote locations, challenging weather, difficult ground conditions and higher logistics and accommodation costs continue to shape project risk and cost planning. Fly in, fly out labour models are common, adding further cost pressure. Much of the specialist data centre contracting capacity is provided by Irish and UK contractors, which now play a dominant role in delivery across the Nordics.⁴
Life sciences manufacturing remains resilient.
EU pharmaceutical exports rose by 16% in 2025. Europe continues to attract outsourcing investment, with nine of the fourteen US firms that outsourced manufacturing in the past year choosing to locate in Europe. This reflects Europe’s strong infrastructure, credible regulatory environment, and established CDMO ecosystem. Activity has focused on brownfield expansion, though new build is expected to increase.⁵ ⁶
High-tech industrial sectors are recovering.
Semiconductor growth is expected to strengthen in 2026, supported by the European Chips Act, which has mobilised approximately €69bn, with a target of €86bn by 2030. Several first‑of‑a‑kind facilities have been approved, though slow grant allocation and extended permitting continue to delay construction starts. As a result, a "Chips Act 2.0" has been proposed. This is an evolution of the 2023 Act, shifting from initial subsidies to a long-term strategic policy for strengthening the EU's semiconductor ecosystem.⁷ ⁸
The battery sector is regaining momentum, with production forecast to rise by around 40% YoY in 2026, underpinned by a €94.5bn construction pipeline and renewed policy support. Recent subsidy awards, including €643m allocated by Europea’s Climate, Infrastructure and Environment Executive Agency (CINEA) to five projects, have improved confidence after a prolonged period of volatility.⁹ ¹⁰ ¹¹
Commercial construction is undergoing structural change.
Commercial demand is shifting to high-quality, energy-efficient assets and increasing office-to-residential conversions, supported by surplus office supply and government support.¹²
© Linesight
© Linesight