Global Construction Outlook 2023
2023 global construction industry view
Level of optimism for the construction industry
Despite the challenging backdrop, over half (52%) of our respondents felt optimistic about the construction industry in their local market for 2023, rating their confidence as four or five, with five representing feeling fully confident, there is plenty of work and no concerns.
The most confident responses echoed positivity for the wider economy in their region/country, with the highest ratings generally coming from the Asia Pacific region, Latin America and the Middle East. Typically, optimism is generated across these areas by significant inward investment and high demand for infrastructure, housing and lifestyle projects.
Rankings from our European and North American office leads and country directors were slightly more cautious, indicating an overall confidence level of three out of five.
Challenges impacting European confidence are the Russia-Ukraine war and high energy prices. Despite the caution around these, there were some positive balancing remarks, particularly around infrastructure investment and the transition to net zero carbon.
North American respondents noted office trends and workplace strategies post-COVID and the slowing economy potentially throttling the project pipeline, as key concerns. However, they also highlighted that we have learnt from recent times that the forecast can change quickly and dramatically.
Market challenges
Most of our local experts reported that significant construction cost escalation occurred in 2022 — with 64% detailing rises in tender prices by over 10% compared to previous pricing. Increases are leading to pressures on project viability and respondents reported a slowing down in projects progressing to site.
Longer lead-in times and materials availability issues are driving up tender prices. Energy and transport costs also affect pricing and, in some markets, currency depreciation is adding further pressure to imported materials.
Some respondents noted reduced contracting capacity as an issue in their local market and six in ten respondents said that the supply chain in their country or region became more selective in tender opportunities during 2022.
As we begin 2023, many of these interlinked challenges remain to some extent. Our leads ranked materials and labour cost escalation as the top threat. Energy supplies remain precarious and elevated costs are impacting production. High inflation also influences salary expectations and some markets have labour availability issues.
However, it is clear that the challenges impact markets to different extents. For example, management of the COVID-19 pandemic in China has, understandably, tested the local construction industry as well as the wider economy.
Whilst labour availability was an issue identified by more than half of respondents (52%), some areas reported good labour availability.
Sector opportunities
Respondents noted the highest number of tender opportunities being for data centres/mission critical in their local market. Demand is set to continue — with the shift to the Cloud in recent years, plus the expansion of the Internet of Things and increasing use of analytics which requires data storage and processing.
Over half of respondents noted energy and infrastructure opportunities are plentiful; this is often driven by changing demographics, aspirations to improve prospects and help promote sustainable living/support the transition to net zero carbon.
High numbers of tenders were also noted for logistics and warehouses, commercial offices and hospitality and leisure.
Whilst e-commerce remains a significant source of demand for logistics and warehouses, growth is being driven by third-party logistics, health care and life sciences and construction and materials industries.
As businesses explore new workplace strategies in a post-COVID world, the refurbishment and fit-out market remains able to fulfil flexible working aspirations and to encourage employees back to the office.
Research also shows that there is premium for sustainable offices; MSCI reported there is now a gap of 35% in Paris and 25% in London for buildings with sustainability ratings, such as BREEAM and LEED, compared to those without.
There are also many prospects in hospitality and leisure as people have shifted to spending money on experiences after the pandemic. Avolon outlined expectations for global aviation traffic to reach pre-pandemic levels by June 2023. Expectations are that Asia will drive growth, particularly helped by the easing of the Chinese zero-COVID policy. The company also notes that supply-side constraints are the airline's limiting factor, rather than a lack of passenger demand.
