Global Construction Outlook 2022
Global construction industry trends in 2022 include a generally favorable economic outlook along with some challenges that are expected to continue.
In the U.S., the American Institutes of Architects’ Consensus Construction Forecast predict non-residential construction will grow 4.6% in 2022, while a 9% growth is expected in the residential sector, according to Oxford Economics and ConstructConnect forecast .
Across the European Union construction will grow from 1.5% in Spain to 3% in France and the Netherlands. The average growth across the EU is projected at 2.7%, while the United Kingdom is looking at 6.3%.
Construction worldwide is predicted to grow 3.7% in 2022 according to the Construction Intelligence Center, with the largest share of growth to happen in the Asia-Pacific region and China. The fastest growth is expected in Sub-Saharan Africa, including Ethiopia and Eastern African countries.
A recent report by the Housing Industry Association in Australia warned of a slowdown in Australian residential construction starting mid-2022, and Master Builders of Australia predicted the sector would enter negative territory next year. The red hot housing markets that have been spurred by grants for building and renovating are expected to slow down in the face of market saturation and rising costs. Master Builders also expects commercial construction in Australia to drop.
In Canada, the 2022 construction growth is projected at 16.4%, with residential seeing 5.5% growth and non-residential at 23.6%.
Beyond macroeconomics and the potential effects of unknown monetary and public policies, a couple of operational trends could put a damper on the expected growth, while another trend could help minimize their impact.
Labor and Skills Shortages
On the global scale, construction faces growing labor headwinds from decades of low productivity. According to McKinsey, “poor project management and execution, insufficient skills, inadequate design processes, and underinvestment in skills development, R&D, and innovation” are the chief causes for the productivity problems.
Every area has its own culprits. For instance, the U.S. construction industry has struggled with labor problems for decades. The national emphasis on four-year college being a must for all, along with construction’s reputation as dull, dirty, and dangerous, the industry’s inability to establish a reliable labor pipeline, the decline of unions, and the lack of political will to promote trade education all but hollowed out potential pipeline of construction employee candidates.
Then came the great recession, political and cultural battles over immigration, and a pandemic. It’s no wonder construction finds itself in worse shape than ever regarding its labor potential. Besides a numbers issue, it’s also a skills and experience issue since long-term employees head for retirement.
Tech Will Help Attract New Talent
Across the world, technology is one factor that’s helping uplift construction’s reputation. Young people who have grown up with tech are prime candidates for the new roles in construction, such as virtual reality, augmented reality, robotics, and building information modeling specialists. The same candidates can find interesting work in scheduling, estimating, and project management, all of which have heavy tech footprints.
While robotics and autonomous machines will also see more use in 2022, there is still a great need for manual workers. The manual construction processes like finishing concrete or building frame walls still need to be done.
A first step many construction companies are taking is putting a big emphasis on keeping the skilled workers they have. Whether through incentives, bonuses, pay raises, benefits, or adjusting career paths, construction companies will continue pulling out all stops to keep their people in the coming year.
Consolidation is another approach. When a general contractor buys up other trade businesses, they immediately gain greater control over the subcontractor labor portions of the projects. Mergers and acquisitions will continue in 2022 as not only a way to bolster the employment ranks but also to move into new territories or expand into other construction sectors.
Higher Input Costs
Supply chains were stretched to capacity even before the pandemic, which then multiplied the problems. Experts in the U.S. don’t expect great improvement until at least 2023. The European Union projects its supply chain issues will resolve sometime in early 2022. Rising materials prices alone made Canadian reconstruction costs jump by 6.4% from May 2020 to May 2021 as contractors struggled with increased costs and shortages.
In the UK, supply chain shortages have had a disproportionate effect on small to medium-sized businesses. Australia’s decades-long manufacturing decline has left the construction industry there heavily reliant on offshore materials, creating an intractable problem for contractors and owners that’s expected to continue for some time.
In the U.S., supply chain challenges haven’t gone unnoticed by Congress. The current Build Back Better Act (H.R. 5376) under consideration includes $5 billion for supply chain resilience. It comprises supply chain mapping and monitoring, establishing standards and best practices, strengthening security, identifying and promoting technological advances and providing grants to support resilience. Only three percent of the money can be used for administrative purposes.
Contractors can see some benefits by moving materials and supplies conversations up the chain to owners to counter supply chain woes. By doing so during contract negotiations, it’s possible to build some resiliency into the picture through creative sourcing, materials storage, owners supplying materials funding upfront and locking in owner selections far earlier than normal.
There are some other strategies to consider. Contractors may consider increasing the frequency of schedule updates, including delivery of common materials in planning, challenging contract clauses that increase risk in light of supply chain problems, limiting hard bid projects with long price lock-ins, and using contingency clauses to reduce material price volatility.
Tech Adoption Moving to the Platform
High-performance construction companies have abandoned single-point technology solutions and wholeheartedly embraced the cloud platform—that’s the key learning from a recent Procore survey into construction’s tech use. Those that rely heavily on manual and siloed solutions tend to underperform.
In 2022, look for more companies to adopt cloud-based construction project management and other solutions that integrate with their existing tech while involving their partners more deeply.
The global trend of using an ecosystems approach has taken hold this year. More and more firms are differentiating themselves by embracing the platform concept not just for themselves but also by including other project stakeholders. Construction firms that have their subs, their vendors, their engineering, and their design all tapped into a cloud platform are on the cusp of this major tech change for the industry. This trend will only accelerate in 2022, according to Deloitte.
Two other preeminent tech tools that will accelerate in tandem with this collaborative new paradigm are BIM and 3D modeling. These technologies are making prefabrication of components more exact so trade contractors can assemble, test and deploy larger portions of the work offsite under controlled conditions. Besides cutting costs, the goal is to improve quality and reduce rework.
While construction firms can rack up major competitive advantages by using more tech tools and automation, this requires careful investment. Running after single-point solutions that don’t integrate with existing software, hardware and business processes can work to a firm’s detriment in the long term.
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