In the last 12 months, the economic backdrop has shifted. The International Monetary Fund has cut its forecast for global economic growth, stock markets have retreated, and house price inflation has slowed.
Added to this, political turmoil and trade-war tensions have increased uncertainty and volatility within global markets, with tariffs directly affecting the construction sector.
Despite these headwinds, the global construction sector entered this year with significant momentum, having seen growth of five percent in 2018.
Prospects throughout 2019 are equally buoyant – our 2019 international construction market survey reveals 28 percent of markets are hot or overheating and a further 36 percent continue to warm up. Just eight percent are cooling, indicating widespread and continued growth in workload through the year.
Increasing activity and demand, in an already hot market, presents both opportunities and challenges for the construction industry and its customers. On one hand, strong growth in construction will help support economic growth, reducing the potential of a major downturn. This could cushion some of the negative impacts on the sector and help maintain favourable conditions for business in many markets.
The challenge is, as hotter markets become more overstretched, escalating construction costs and tighter labour markets will increasingly frustrate attempts to deliver projects to desired standards, cost and timeframes.
This will also put pressure on the price gap between markets, which have also widened. In 2018, the cost of constructing one building in the ten most expensive markets was equivalent to delivering four buildings within the bottom ten markets. In 2019 that cost gap has grown to five.
A future easing of economic growth may indeed take some heat out of the market. But while this may provide some relief, the symptoms of an overstretched sector – cost overruns, delays in delivery and an erosion of quality – should not be ignored.
We cannot hide from the increasing volatility markets are experiencing. Nor can we ignore growing impatience that construction is not adapting or improving fast enough. We continue to face some fundamental issues.
Clients and suppliers equally have an opportunity – and a responsibility – to drive productivity through new innovations in building, developing new ways of working and business models, using technology in a smarter way and developing new skills for the future. As a sector filled with pride and ambition, now is our time to shine.
Against this backdrop of rising costs and market volatility, it is time to join forces across the industry, identify levers, mobilise and accelerate change. By doing this together, we can benefit collectively from the whole industry and our ability to deliver next generation real estate solutions for all. Combining this with which markets offer the most attractive conditions for investment, both in terms of the potential for construction today and with a view to future growth, may yield unexpected results.
Neil Bullen is Global Managing Director, Real Estate at Turner & Townsend. Contact Neil to discuss this report and find out how Turner & Townsend can help you.