Construction

Drivers

All industries are being shaped by the global Megatends of Globalisation, changing Demographics, Climate change and Technology innovation.  Shaped by the these trends and now the pandemic, the industry is being shaped by five major drivers:

 Demand

There is a global need to spend at least $57 trillion on infrastructure by 2030 just to keep up with global GDP growth (which will double by 2050) and urbanisation (68% of the world’s population by 2050), and that’s before spending on climate change. As the world’s population approaches 10 billion, the global building stock is expected to double in size.

Asia is becoming the backbone of the global economy. By 2050, Asia is expected to account for more than half of global consumer expenditure. There will be a spend of $14 trillion by 2025 on transport infrastructure. 

Infrastructure investment will be a major focus of governments especially on the back of post COVID-19 stimulus packages.

Almost 75% of the infrastructure that will exist in 2050 has yet to be built.

The pandemic hit demand in 2020 but this returned in 2021.

Sustainability

 The global construction industry is the world’s largest consumer of raw materials, buildings and construction accounted for 36% of final energy use and 39% of carbon dioxide (CO2) emissions in 2018, 11% of which resulted from manufacturing building materials such as steel, cement and glass. Each year, more than 4 billion tonnes of cement are produced, accounting for around 8% of global CO2 emissions. That’s the problem, but there is an opportunity too.

There is a need to spend $25-27 trillion on Electricity infrastructure, $25-32 trillion on Road Infrastructure and on Seawall defences to protect the adverse weather conditions. All by 2040. Overall, global infrastructure could require at least $7 trillion spending on it every year to address climate change needs.

By 2050, new infrastructure and renovations will have net zero embodied carbon, and all buildings must be net zero operational carbon.  The launch of the UK’s “Green Revolution” and Ten Point Plan will drive adoption.

Skill Shortages

Construction employs 100m people globally but has an acute worker shortage. The lack of skills (40%) and talent shortages (39%) impacts productivity. This may be alleviated in the short term by the economic crisis. However, almost a third of the UK workforce are approaching retirement age and Brexit will limit the availability of EU labour in the UK.

It is also the least safe industry, although only accounting for 5% of the UK workforce, it has 36% of fatal injuries (US 21%) and 10% of major injuries.

Productivity

 Construction has seen a meagre productivity growth of 1% annually for the past two decades. In a complex and highly fragmented ecosystem up to 35% of time is non-productive and only 50% of planned activities are on schedule. Large projects typically take 20% longer to finish than scheduled and are up to 80% over budget. Up to 20% productivity was lost due  COVID precautions.

 The construction industry is among the least digitised and spends less than 1% of revenues on information technology. R&D spending in construction also runs well behind that of other industries: less than 1% of revenues, versus 3.5 to 4.5% for the auto and aerospace sectors. To meet future challenges investment in digital needs to increase significantly. 

The UK Construction Playbook set standards on digital adoption.

Profitability

Profitability is low, at around 5% EBIT margin, despite high risks and many insolvencies. Customer satisfaction is hampered by regular time and budget overruns and lengthy claims procedures. Poor risk allocation between clients and contractors prevents projects from being procured and delivered successfully.

Post pandemic costs are rising fast further impacting margins.

Digitisation could reduce project costs by 45%.