European construction: easing inflation, tight power and rising carbon costs

Across Europe, the construction market is moving from a period of price shock to one of selective recovery. 

Cost inflation has moderated from the post‑pandemic peak, yet delivery risk has shifted toward the availability of power, metals volatility and the financial bite of a new carbon pricing system that has begun in earnest this year.

Linesight's H1 2025 analysis flagged a resilient but fragmented European market, with public investment in infrastructure, energy and utilities offsetting weakness in interest rate-sensitive segments.

Data centres, life sciences and industrial projects led activity, but programme delivery was constrained by labour shortages and elevated energy‑linked input costs.

In January 2026, our outlook pointed to cautious acceleration rather than a broad‑based surge, with momentum varying by country and sector as inflation eased and supply chains stabilised.

RICS' Q3 Global Construction Monitor, published in November 2025, corroborates this turn: Europe's Construction Sentiment Index improved throughout the year, and respondents expected cost rises to slow over 2026.

Tender windows are opening, but contractor capacity and labour remain binding constraints in mission‑critical trades. RICS' Global Construction Monitor similarly shows Europe's cost projections easing and workloads improving in select markets, creating a better, if still delicate, environment for pricing.

Metals remain the wild card. Our report highlights persistent volatility in steel and copper, which continues to influence mechanical, engineering and plumbing packages, rebar, cable and switchgear pricing. Consultants should expect quarter‑to‑quarter moves to flow into supplier surcharges and shorter bid validity.

By contrast, energy‑intensive materials such as cement and bricks are more stable than in 2022 to 2023, although they remain structurally pricier because of energy and carbon cost pass‑through.

However, for both metals and cement, the evolving conflict in the Middle East is adding renewed pressure across supply chains. As energy costs rise, these increases pass through to quarrying, calcination, smelting and transport, making energy the primary channel from geopolitics to construction budgets.  

The upshot for quantity surveyor teams is to pair market testing with optioneering on specifications, maintain alternates for key metals and build escalation provisions targeted to metals and cement rather than applying blanket uplifts.

This manifests as longer enabling works, phased energisation and location trade‑offs. 

For technical teams, the practical response is early and ongoing engagement with utilities, evaluation of private wire or on‑site generation to bridge grid constraints, and phasing loads to align energisation with programme milestones.

This constraint is expected to persist to 2030 and beyond, as necessary improvements to the grid and onboarding of power stations will take years to decades to complete, and the demand from data centres in particular, is expected to continue to rise over the same timeframe.

Importers of covered goods must become authorised CBAM declarants above a 50‑tonne annual mass threshold and will buy certificates priced off the EU emissions trading scheme (ETS) auction price to match embedded emissions in imports.

Electricity and hydrogen remain in scope regardless of volume, and the regime is aligned with the phased reduction of EU ETS free allocation through 2034.

Additional commission acts published in December 2025 clarified calculation methodologies, registry operations and anti‑circumvention measures, signalling that compliance expectations for supplier data and verification will tighten.

For bills of quantities that include steel, aluminium, cement and downstream fabrications, expect more explicit carbon pass‑through lines and evidence requirements for embedded emissions.

Pricing will reference certificate costs linked to the EU ETS, and may vary with quarterly or weekly averages as the regime is phased in. Contractual language should define how certificate price changes are handled between award and delivery, and what documentation suppliers must provide to substantiate actual emissions versus default values.

Where suppliers can demonstrate carbon prices already paid in the country of origin, those can be deducted, but this requires robust evidence chains that many vendors will need time to develop.

CBAM introduces a range of new responsibilities and duties for quantity surveyors, cost managers and technical leads that require adjustments to your workflow processes.

Rebase the cost model for carbon exposure. Create explicit allowances for CBAM‑related costs on covered categories and test sensitivity to EU ETS price ranges. Tie allowances to documentary quality thresholds so that better supplier data can unlock deductions from defaults.

Shorten validity periods and calibrate escalation to metals. Keep tender validity periods tight for steel and copper packages, and consider indexed adjustments rather than across-the-board contingencies that can overprice other trades.

Front‑load power strategy. Treat power as a critical path activity by RIBA Stage 2 to 3 equivalent. Include grid studies, connection applications and alternatives such as private wire or on‑site generation in the base programme, not as post‑award changes.

Specify emissions data standards. Require suppliers to provide verified embedded emissions data to the latest CBAM methodologies, with audit trails suitable for annual declarations. Build compliance checkpoints into submittals.

Sequence procurement to sentiment and capacity. Use market sentiment and country‑level indicators to time key packages where feasible, especially in markets showing improving workloads and easing cost growth.

Linesight's 2026 outlook supports a view of stabilising inflation and selective growth, particularly in infrastructure, digital assets, energy and utilities. Yet success will depend on treating power and carbon as first‑order commercial variables, not as afterthoughts.

Here are the key takeaways for practitioners.

• Inflation is easing, but programme risk is migrating to power, metals volatility and carbon compliance. Price these explicitly.
• CBAM is live for 2026 imports, with the first declaration due 30 September 2027. Align contracts, data requirements and supplier prequalification now.
• Engage utilities early and explore private wire or on‑site generation where grid lead times threaten critical path.
• Use RICS sentiment reports to inform procurement timing and hold escalation where it is most likely to bite.