Global Construction Outlook 2024
2024 global construction industry view
Level of optimism for the construction industry
As we begin 2024, confidence in the construction industry appears lower than for the same period entering 2023.
The average confidence rating for 2024 is 2.9, compared to 3.6 last year, and just under 30% of respondents rated their confidence at four or five (with five representing feeling fully confident), compared to 52% for 2023.
Responses displaying the highest confidence for the year ahead were typically reported in the Asia Pacific, Americas and Middle Eastern regions, all of which highlighted a substantial level of activity in their respective local markets.
Significant inward investment is the reason for the optimism; however, some note that the market is so buoyant that there are concerns about capacity and labour availability.
Rankings from our European office leads were more cautious due to the impact of inflation and cost escalation, knocking investor confidence and causing projects to progress more slowly. However, there are hopes of an improved picture later in the year.
Market challenges
Significant cost escalation was seen in 2022; over 60% of our office leads reported rises in tender prices by over 10% for the year, compared to 24% seeing increases above 10% in 2023.
Some areas, such as China, report no increase in tender prices in 2023 due to reduced investment, leading to increased competition for projects.
Others, such as the US and many European countries, saw high increases earlier in 2023, which slowed down in the second half of the year with inflation and energy cost reductions.
Generally, expectations are for more typical tender price increases in 2024, although some areas, such as Qatar, face pressures such as high activity levels in other parts of the region.
Just over half of our survey respondents said that the supply chain in their local market became more selective in tender opportunities in 2023.
Cost escalation has led to supply chain pressures in some markets, reducing contracting capacity and increasing caution.
In areas with high activity levels, such as Australia, the market is also selective as contractors can ‘pick and choose’ the projects they work on. There is less competitive tendering and more negotiated arrangements and relationship-based engagements.
Conversely, areas with fewer projects see more competition with a willing supply chain.
The threats to the construction industry are largely interlinked. Global tensions created energy price volatility, and cost-of-living pressures increased labour costs in many markets. Cost escalation puts pressure on project viability, and wider economic woes often lead to reduced investor confidence and caution.
Our office leads ranked materials and labour cost escalation as the greatest threat, followed by investor confidence/funding caution. Ranked joint third were impacts from global tensions and labour availability/skills shortages.
While there are general trends, the impact of the threats and the reasoning behind why they threaten the local construction industry are nuanced. For instance, Hungary is still dependent on Russian oil and gas, which causes significant economic uncertainty.
For the Chinese market, China-US relations and other geopolitical issues are the most critical factors and have led to issues with investor confidence. Compared to this, the alternative threats have a limited impact on the local construction industry.
Some European respondents highlighted that the impacts depend on the initiation date of projects, as schemes may no longer be viable. In other markets, such as Australia, many feasibilities can accommodate increased construction costs, but the viability of some is starting to come into question.
IBM Winchester / Gleeds provided Quantity Surveying/Cost Management services.
Sector opportunities
Data centres/mission critical
Artificial intelligence's (AI) evolution creates opportunities but implications for the construction industry and certain sectors, with data centres being one that will see an acceleration of demand throughout 2024.
Upgrading current buildings with technological advances will be crucial capacity-wise. Independent research firm Dell’Oro Group suggests that by 2027, $500 billion of investment worldwide in digital infrastructure will be required to handle soaring computing demand.
Researchers estimate that the energy consumption of executing a single generative AI algorithm is roughly five times higher than that of a typical search engine query.
Large language models rely heavily on computational power both during their training phase and then every time they are used, contributing to carbon emissions. They may require the use of a lot of water to cool the data centres.
However, as AI evolves, it will offer solutions to enhance its sustainable use. A study by Lawrence Berkeley National Laboratory in collaboration with Google found that AI-based control of data centre cooling systems reduced energy consumption by up to 25%.
Commerical offices, refurbishments and fit-outs
Opportunities exist for savvy investors and owners to retrofit poor-performing office buildings with sustainability upgrades, resulting in upside operational efficiencies or even the bare minimum starting point for a sale in a sector that epitomises the flight to quality.
One example last year was Hines paying $60 million for a Washington DC office building — less than two-thirds of the debt it cost the seller to fully renovate by 2Q 2020. The new space then enticed a new tenant, law firm Davis Polk, to take half of the building.
The regulatory environment is another driver of refurbishment globally. In Europe, EU directives such as the Sustainable Finance Disclosures Regulation (SFDR) and EU Taxonomy now require compliance when financing property assets.
In the UK, MEES regulations will be a catalyst for retrofit project starts on office space this year. According to CBRE research, up to 11.9 million sq ft of office stock due to be released to central London’s market by the end of 2027 has an Energy Performance Certificate lower than C — or categorised as energy inefficient and non-compliant.
These directives have implications across a property’s life cycle. Therefore, stakeholders from the conception and planning stages through to construction, occupation and sale will all have to adapt in 2024 and take a holistic approach to ESG strategies or risk being left with a devalued or stranded asset.
Three Nottingham / Gleeds provided Contract Advice, Project Management and Quantity Surveying/Cost Management services.
Hospitality and leisure
Operating fundamentals in hospitality have continued to be strong and have strengthened over the course of the past year and, as a result, lenders are responding by lending in the space.
Operators are better suited to an inflationary environment by increasing their ADRs in response. However, hoteliers have a delicate balancing act if passing price increases on to customers, who are equally seeing budgets stretched and are now far more discerning on their choice of accommodation against criteria such as affordability and sustainability credentials.
The choices available have never been greater, with major hotel groups introducing a wave of brands in 2023, including Marriott’s StudioRes, IHG’s Garner, Spark by Hilton, and Hyatt Studios. There are now 1,000 hotel brands worldwide.
Some operators are exploring opportunities for supplier consolidation or contract renegotiation. Reflecting the wider trend of space-as-a-service, these relationships can go beyond the traditional supplier and customer interaction and become more of a partnership.
Construction financing in 2024 could be seen as an opportune moment for developers to assess the prospect of delivering a new hotel in two to three years when it is likely there will be a dramatic reduction in new supply coming onto the market and at a time when there may well be a somewhat lower interest rate environment.
While 2023 was a good year for revPAR growth, such robust growth in 2024 will be tough to repeat. Owners will need to control their operating costs and labour efficiency to help improve the health of their assets.
Lutetia Hotel Paris / Gleeds Quantity Surveying/Cost Management services.
Hospitality and leisure
Operating fundamentals in hospitality have continued to be strong and have strengthened over the course of the past year and, as a result, lenders are responding by lending in the space.
Operators are better suited to an inflationary environment by increasing their ADRs in response. However, hoteliers have a delicate balancing act if passing price increases on to customers, who are equally seeing budgets stretched and are now far more discerning on their choice of accommodation against criteria such as affordability and sustainability credentials.
The choices available have never been greater, with major hotel groups introducing a wave of brands in 2023, including Marriott’s StudioRes, IHG’s Garner, Spark by Hilton, and Hyatt Studios. There are now 1,000 hotel brands worldwide.
Some operators are exploring opportunities for supplier consolidation or contract renegotiation. Reflecting the wider trend of space-as-a-service, these relationships can go beyond the traditional supplier and customer interaction and become more of a partnership.
Construction financing in 2024 could be seen as an opportune moment for developers to assess the prospect of delivering a new hotel in two to three years when it is likely there will be a dramatic reduction in new supply coming onto the market and at a time when there may well be a somewhat lower interest rate environment.
While 2023 was a good year for revPAR growth, such robust growth in 2024 will be tough to repeat. Owners will need to control their operating costs and labour efficiency to help improve the health of their assets.
Logistics and warehouses
Once again, there will be a significant amount of capital looking to develop and invest in the sector. After a slight dip from the COVID-19 pandemic highs, market optimism is improving, with the strength of the occupational market adding to its attractiveness.
Urbanisation and population growth are two tailwinds intensifying the focus on urban logistics. Consumers expect ever-faster delivery times and so competition for developing last-mile logistic hubs to help meet demand will be fierce.
However, more than ever, innovative solutions to tackle the issue of land availability in towns and cities will be required. Creative developers have turned to vertical facilities, such as SEGRO’s underground logistics hub conversion at the Gobelins in the centre of Paris.
The specification of new developments continues to set new standards in sustainability, driven by investors and occupiers looking to futureproof assets and satisfy ESG commitments.
Developers are also thinking outside the proverbial logistics box by installing environmentally-friendly landscaping. For instance, signage can enhance biodiversity, with homes at the base for various insects and pollinator-friendly planting — all of which help local ecosystems thrive.
Ocean Infinity Centenary Quay Warehouse Control Room Southampton / Gleeds provided Quantity Surveying/Cost Management services.
Industrial and manufacturing
As the desire to manage supply chain risk grows amid recent disruptions, occupiers will continue with the nearshoring and reshoring trends as a logical strategy. One incentive is that the sector benefits from governments globally placing immense investment in various manufacturing industries.
The ability to tap into this investment while reducing logistical challenges — as well as freight costs and transit times — is best illustrated in the US, whereby the government is incentivising increased domestic manufacturing through, for instance, the CHIPS and Science Act with $53 billion worth of investment.
Though capital-intensive, investing in manufacturing properties will be necessary to cope with the demand for manufacturing space and achieve long-term gains in supply chain resilience.
Continued supply chain collaboration will be crucial as manufacturing capabilities evolve and sustainability initiatives become increasingly prominent. Manufacturers exploring partnerships that will allow them to innovate by using local resources can gain a competitive advantage.
Trends
