RICS: Cost pressure in the construction industry increases, outlook for credit conditions deteriorates / Germany leads the markets surveyed across Europe, although index falls, but outlook for residential construction activity rises significantly

The results of the RICS Global Construction Monitor for the first quarter of 2026 show that the overarching Construction Sentiment Index (CSI) rose slightly to a value of +8, after +7 in Q4 2025. This means that the indicator continues to move in slightly more positive territory. However, a more differentiated picture emerges behind this overall stable development: a clear shift can be seen at both the regional and state level.

The pressure on the cost side intensified significantly over the course of the quarter. 12-month cost forecasts have risen across the board, with respondents increasingly citing geopolitical tensions in the Middle East as a major influencing factor. Expectations regarding credit conditions have also deteriorated significantly. The 12-month outlook has turned significantly negative for the first time in several quarters. In contrast, expectations regarding the future volume of work remain positive overall, especially in the area of infrastructure.

The most noticeable development in the CSI this quarter was a significant slowdown in the Middle East and Africa (MEA) region, where the index fell from +29 to +8 in the first quarter. After several quarters of consistently strong figures, this points to a significant slowdown in the pace of growth. In the Americas region, the index also weakened slightly from +25 to +21, although the region continues to record a solidly positive mood. Europe also declined from +14 to +7, signaling some loss of momentum in the recent recovery. In contrast, the Asia-Pacific (APAC) region improved to a neutral reading of 0 (from -14 in Q4). This improvement is mainly due to less negative results from mainland China. Still, conditions in most other APAC markets remain relatively robust, making APAC the only region to see an improvement in sentiment quarter-over-quarter.

At the country level, India and the US lead the growth, while Qatar, Mauritius and France fall behind India maintained its position as the strongest market in the first quarter with a score of +42%, supported by broad-based growth in all sectors and particularly strong momentum in private housing and infrastructure. The Netherlands (+31), Singapore (+30) and the US (+25) also saw solid expansions in the quarter. Germany (+21), Saudi Arabia (+18), Ireland (+15) and South Africa (+14) also reported strong figures, while the United Arab Emirates (UAE) (+11), Malaysia (+9) and Australia (+4) reported more moderate growth. At the weaker end of the scale, Qatar (-43) and Mauritius (-29) recorded significant deteriorations compared to the previous quarter. Respondents in both markets pointed to a weaker market environment. Hong Kong (-28) and France (-27) also remained clearly in contraction territory, while activity in China (-26) and Italy (-26) continued to weaken. Sri Lanka (-13) and the UK (-10) reported moderately negative readings, while conditions in Canada (-3) and New Zealand (-5) were almost stable.

When looking at the sectoral breakdown, infrastructure continues to outperform other market segments in many regions. In about two-thirds of the countries covered by the monitor, current volumes of work in the infrastructure sector are higher than in private residential construction and commercial real estate. France, Mauritius and the Netherlands are exceptions, as infrastructure activity is weaker there than in other segments. Overall, however, infrastructure remains a key growth driver in the broader construction market.

While the overall picture remains positive, it is particularly noticeable this quarter that respondents have scaled back their expectations for the volume of work over the next 12 months in most regions and sectors. This adjustment is particularly pronounced in the Americas region and in the Middle East/Africa region. In the Americas, the net balance for commercial real estate expectations fell by almost half in 12 months to +19% (from +36% in Q4), while expectations for private housing also weakened to +19% (from +29%).

In the Middle East/Africa region, the decline was even more pronounced. Here, infrastructure expectations fell from +61% to +17% and expectations for commercial real estate construction fell from +40% to +16%. The UAE provides a particularly clear example of this: expectations for the construction of housing fell from +68% to -23% (from +68%) and for the construction of commercial real estate from +58% to -6% (from +58%). Saudi Arabia and New Zealand also saw significant declines in their 12-month forecasts in all three sectors.

APAC was the only region with a significant improvement in 12-month expectations. All three sectors improved here as respondents in China and Hong Kong are less pessimistic about the year ahead. Germany and India also reported improved expectations in all three sectors. Infrastructure expectations remain particularly strong in the USA (+69%) and India (+74%).

At the global level, the net balance for infrastructure work volume continued to increase from +35% to +40% over the next 12 months. This highlights the role of infrastructure as the most resilient part of the outlook. The key message is therefore that respondents expect growth to continue in the coming year – but with significantly less conviction than three months ago, especially in markets that are heavily affected by geopolitical and cost-related disruptions.

Globally, cost forecasts for the next 12 months rose significantly in the first quarter. The forecast for material costs rose from 4.0% to 6.4%. Expectations for skilled and unskilled workers remained broadly stable at 4.5% and 3.0% respectively. The increase in material and construction costs is the strongest in a long time and is in line with respondents' statements about rising fuel prices, disruptions in shipping traffic and general strains on supply chains due to tensions in the Middle East.

Credit conditions continued to deteriorate in the first quarter. The net balance of respondents who reported a deterioration in the past three months fell from -12% to -18%. Even more remarkable is the deterioration in future expectations for three months (from +4%) and -14% (from +13%) in 12 months. This represents a significant reversal from the gradual improvement at the beginning of 2025. In particular, respondents cite interest rate expectations, volatility on the financial markets and geopolitical uncertainty. In addition, the current profit margins deteriorated further to a net balance of -29% (from -20%). This pressure on margins corresponds to the sharp increase in input costs, as expected increases in construction costs are expected to be stronger than price increases in tenders.

In view of increasing geopolitical and macroeconomic pressures, the results of the Global Construction Monitor for Europe show a weaker regional picture in the first quarter of 2026, with the CSI falling from +14 to +7. Although the overall figure remains positive, the country-level picture is much more fragmented than in previous quarters. Italy and the UK are now also in negative territory, along with France. In addition, the previously strong values in Germany, Ireland and the Netherlands have weakened. Europe-wide expectations for housing construction have been scaled back, while infrastructure remains resilient.

At the country level, Germany continues to lead the markets surveyed, although the value fell from +34 to +27. The Netherlands also weakened from -25 to +19, Ireland fell from +18 to +9. The most noticeable change was seen in Italy. Here, the CSI fell significantly from +18 to -15 with weakness in all three sectors. The UK also fell sharply into negative territory from +2 to -9. France remained the weakest market in the region at -24 and almost unchanged from -22 in Q4, although infrastructure there continues to provide some support.

In the first quarter, there was a clear change in the factors slowing down activity in Europe. Material costs are now the most frequently cited problem: 63% of respondents cited this factor, which is significantly higher than 50% in Q4. In Germany, the proportion of those who named the factor was as high as 67%.

Material bottlenecks also rose from 17% to 27%. Insufficient demand also increased from 37% to 46%. Here, too, Germany shows a similar trend, where the figure rose from 39% to 60%. In contrast, the following factors decreased across Europe: labour shortage: 28% (from 49%), competition: 28% (from 33%), skills shortage: 52% (from 55%) and financing bottlenecks: stable at 52% (from 54%).

In terms of expectations for the workload in the next 12 months, the net balance in the residential construction sector fell from +31 to +14%. This was the sharpest decline among all sectors. Expectations for the construction of commercial real estate remained broadly stable at +18% (Q4: +20%). Expectations for infrastructure continued to improve from +24% to +38%. This means that infrastructure remains the segment with the strongest outlook.

At the country level, Germany continues to show the most balanced outlook across all sectors. Particularly noteworthy is the strong increase in the outlook for residential construction, where the figure rose from +38% to +67%. Ireland and the Netherlands also remain in positive territory. France stands out as a clear laggard, as respondents there expect a contraction in both private sectors. Italy's outlook has also deteriorated significantly. Expectations for profit margins over the next 12 months also deteriorated sharply from -1% to -19%. This points to growing concerns about falling margins due to rising costs.

"The global Construction Index remains stable and shows a moderate improvement in overall market momentum. However, a more differentiated picture emerges behind this overall stable development: a clear shift can be seen at both the regional and state level. The 12-month outlook has turned significantly negative for the first time in several quarters. In contrast, expectations regarding the future volume of work remain positive overall, especially in the area of infrastructure. The segment will become the central driver of construction activities. Cost pressure intensified significantly over the course of the quarter. The 12-month cost forecasts have deteriorated significantly in all areas. The background to this is the geopolitical tensions in the Middle East, their impact on energy and material prices and deteriorating credit conditions. This is the first time in several quarters that the outlook has turned significantly negative. It remains to be seen how the framework conditions develop for the rest of the year."