Navigating headwinds, repositioning for growth

Contextual challenges and the funding landscape

2025 saw Birmingham’s construction sector continue to navigate a challenging economic environment.

Persistent inflation and elevated interest rates, though starting to ease somewhat during 2025, remain significantly higher than before the COVID-19 pandemic and a key concern for the construction and financing sector. This directly impacted the viability of new schemes and the cost of borrowing for construction projects. The introduction of the Building Safety Act has added to the legislative landscape which the construction sector must navigate. However, these are not the only challenges faced, and as Deloitte’s Finance Trends 2026 report highlights, sector leaders are simultaneously navigating multiple high-priority risks .

Analysis from the Building Cost Information Service (BCIS) indicated that the Autumn budget brought more costs to construction, contributing to labour cost increases, with a 7.1% annual rise. Meanwhile, the UK government’s re-evaluation of national house building targets has had direct impacts on strategic spatial development. The Council has also undertaken a review of its own real estate portfolio, seeking opportunities to unlock value and sustainable development through sales of assets in strategic locations with development opportunity.

Despite these challenges, the city witnessed a significant number of new starts, with 23 recorded in 2025, proving its ongoing resilience. However, it is worth noting the increase in total number of schemes does not equate to an increase in volume of units and floorspace construction, due to the smaller scale of a number of the new starts. Indeed, this year sees an overall reduction in volume under construction for the residential, student residential, office and education sectors. Whilst capital availability remains a key concern, investors are becoming more selective. There appears to be an aspect of ‘wait and see’, where investors are monitoring the market, new routes to funding, and changing market demand to determine when to commit to construction. Strategically positioned sites in terms of location and connectivity, as well as with funding and political support are offering the most certainty to investors, and are breaking ground, as are smaller sites that can avoid regulatory hurdles.

Unlocking the pipeline: The public sector's role

...As funder

In this challenging context, the public sector, working alongside the private sector, has been instrumental in unlocking development. Initiatives such as the £389m Integrated Settlement secured through the Devolution Deal, the first of its kind in England, and the Strategic Place Partnership with Homes England, are proving crucial in kickstarting stalled sites. For example, a new start, Moda’s the Stone Yard in Digbeth, has been unlocked through a £200m funding agreement and direct collaboration between the private and public sectors. In this example, the funding package includes debt financing from NatWest and Homes England via the Home Building Fund, as well as brownfield grant funding from the WMCA. This funding boost, has unlocked a major, long-term, site in Digbeth that has stood vacant for many years.

Another example is Smithfield. In July 2025, Enterprise Zone Funding was agreed bringing £172.8m grant funding to the scheme and tipping the balance sheet to viable. The Outline Business Case will be taken forward in 2026 to secure the funding, and we could see Smithfield as a new start in next year’s survey. This would unlock the largest city centre development site in the UK, and deliver circa 3,700 new homes and 2.5m sq. ft. of commercial floorspace.

In last year’s survey, we predicted that collaboration between the public and private sectors would be crucial to unlock stalled development. In 2025, we are seeing evidence that through collaboration, alternative routes to funding are being realised and unlocking major sites. The Devolution Deal has been instrumental in delivering new routes to funding and we expect to see this leveraged further. In 2026, ongoing partnerships will be key, albeit the upcoming local election will need to be carefully navigated and is likely a ongoing concern for both construction and financing sectors.

...As regulator

During 2025, the construction sector, and particularly construction of high-rise residential buildings (defined as Higher-Risk Buildings, or 'HRBs'), faced significant regulatory hurdles under the Building Safety Act (BSA). While essential for ensuring high safety standards, these new processes have caused notable delays to construction projects. However, the government has responded, and there are some early signs that the delays are starting to improve.

Although the number of new starts for the residential sector was particularly high in this year’s survey, the number of units has declined by 12% with 6,822 units under construction. Of the 17 new starts, 12 did not meet the definition of a HRB and to four it did not apply. This pattern of seeing a greater number of small schemes come to the market could be evident of the BSA’s impact on Birmingham. The remaining new start Edition in the City Heart, is set to deliver 581 build-to-rent homes over 46 storeys. Its successful passage through the Building Safety Regulator’s (BSR) Gateway 2 safety stage in November 2025 marks it as the city's first skyscraper to navigate this critical regulatory milestone. Meanwhile, the towering Octagon and One Eastside, which both completed this year, were not held up.

Nationally, the BSR's capacity and capability were key factors contributing to these delays. Throughout 2025, the regulator faced challenges in processing applications, creating a significant backlog that likely delayed the commencement or progression of other categorised HRB developments across Birmingham. However, by Q4 2025, there were encouraging signs of improvement, with the BSR reporting a reduction in legacy cases following reforms such as the introduction of a "Fast Track Innovation Unit" and the addition of over 100 new staff members.

A government policy paper in December 2025 confirmed the definition of HRBs remained unchanged following an initial review in February. This stability, despite some sector sentiment for adjustments, was a deliberate BSR decision to avoid further disruption to an industry still embedding the new regime. While this did not alleviate the operational challenges during 2025, it at least prevented additional uncertainty regarding which buildings fell within the scope of the new regulations. Looking ahead, the BSR and Ministry of Housing, Communities and Local Government (MHCLG) have committed to an ongoing risk-based review of the HRB definition, considering stakeholder views, emerging risks, and new data at least once a year, with a full review of the BSA scheduled for 2027.

The broader implications of these regulatory challenges were echoed nationally. In its December paper, the House of Lords stated that "delays in the BSR’s building control approvals have a severe impact on the viability of high-rise housing projects, with knock-on effects for their supply chains." They urged the government to clear "’old’ new build applications" and regularly review the regulatory body's performance.

For Birmingham and its future developments, this means that while the regulatory framework is stabilising in its definition, the operational speed of approvals remains a critical factor. Developers planning HRB projects in the city must continue to factor in extended timelines and costs for regulatory approvals prior to being able to start on site. During 2026, we should see some improvements to these timelines as the introduced reforms improve efficiency. However, we still expect to see some latency in converting the city’s pipeline of HRBs from planning consents to commencing construction, and it’s possible that smaller schemes continue to dominate the residential sector in the short term.

Looking ahead to 2026, the public sector, as enabler and regulator will continue to have a significant role to play in unlocking major developments in the city.

Strategic repositioning: Leveraging regional strength to maximise competitiveness

The UK’s inaugural regional summit was hosted in Birmingham in October 2025, placing the city in the national spotlight, showcasing its appeal to investors and government backing. To attract investment, Birmingham is pursuing a strategy of differentiation, leveraging its unique strengths. But the city's economic narrative is also defined by its ability to be complementary to the diverse strengths across the West Midlands.

2025 was the first full year in operation for the West Midlands Investment Zone (WMIZ) having commenced its 10-year phase in 2024. The WMIZ aims for regional economic success and has created a framework that is designed to foster conditions for investment whilst leveraging the unique strengths of its parts.

Birmingham Knowledge Quarter (B-KQ), in the city centre, officially launched in May 2025. Drawing on Birmingham’s identity as the original powerhouse of the industrial revolution and its strategic location near HS2, it will act as an innovation hub focused on advanced manufacturing, R&D, and health tech research. It provides enhanced investor incentives, including full Stamp Duty Land Tax relief, five years of business rates relief, an annual structures and building allowance. The partnership announced between Hines and the Woodbourne Group could bring a further £400m of investment to this part of the city, within the education, learning and innovation sectors. Although our survey results have shown limited activity in the education and innovation sector during 2025 with just one scheme completing, we could see increased activity in 2026 with improved incentives for investment in this area of the city.

Elsewhere in the Midlands and celebrating local strengths, the Green Innovation Corridor (GIC) in Wolverhampton was boosted by a £7 million investment which will be spent on preparing four brownfield sites to be shovel ready for developers. This will kickstart investment into the GIC which will have a sector focus on green innovation. Whilst the Coventry and Warwick Gigapark received a funding boost with £23 million announced to power up the Gigapark through investment into enabling works. Subsequently, a revised planning application was approved in December 2025 for the first phase of the electric battery park.

This strategic, region-wide approach is proving effective and could be further enhanced through the announced Mayoral Development Corporation (MDC). The MDC could streamline bureaucracy and provide additional certainty for schemes, supporting and promoting investment. The Birmingham Economic Review 2025 confirms that the West Midlands secured 130 Foreign Direct Investment (FDI) projects in the 2024-25 financial year, the highest number of any UK region outside London, accounting for 9.8% of the national total. These FDI projects created 5,821 new jobs, representing 9.7% of all FDI-related jobs nationally, the second-highest share outside London. This demonstrates that the city, as part of a stronger regional whole, is repositioning itself as a leading destination for global capital in the UK.

At the city level, complementary differentiation and strategic positioning is effective too. The Birmingham Economic Review 2025 notes that the West Midlands' innovation capacity is strengthening, with emerging clusters in AI, clean energy, and life sciences. In addition to the B-KQ, we have seen:

• The power of sport has attracted political interest for the potential of the new Sports Quarter, subsequently securing significant government funding into public transport for East Birmingham.
• The largest deal in the city in 2025 secured at the Birmingham Health Innovation Campus in Selly Oak, with the Birmingham Centre for Anatomy, Surgical and Clinical Skills let 51,000 sq. ft.
• At Tyseley Energy Park, Certas opened the UK’s first dedicated hydrotreated vegetable oil bunder refuelling facility. Looking ahead to 2026, there are plans to build a first of a kind urban anaerobic digestion plant as well as a National Centre for Decarbonisation of Heat.

This targeted approach, both regionally and within the city, underscores Birmingham's ability to cultivate distinct economic ecosystems - the latest evolution of the city of a thousand trades. By fostering sector-specific growth and leveraging strategic public sector frameworks, Birmingham is not only attracting significant investment but also enhancing its overall competitiveness and resilience in a dynamic, and challenging, global market.

Future outlook: Sustaining momentum

Looking ahead to 2026, Birmingham's construction sector presents an opportunity to build on the resilience demonstrated in 2025. While the sector will continue to be presented with challenges, such as through persistent geopolitical uncertainties and regulatory hurdles, there are indicators of renewed momentum.

The anticipated easing of inflation and interest rates, coupled with the strategic impact of devolution deals and significant public sector funding, is expected to unlock further major developments in 2026, like Smithfield. Furthermore, the city's strategic repositioning through initiatives such as the WMIZ and the emerging MDC, alongside targeted investments in the knowledge quarter, green innovation and life sciences, is proving effective in attracting FDI and fostering sector-specific growth. This combination of economic stabilisation, sustained public-private collaboration, and strategic differentiation, positions Birmingham for continued resilient growth, even as the sector remains vigilant to macro-economic shifts and upcoming political transitions.