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Are infrastructure projects leading an industry revival?

The latest Global Construction Monitor finds that infrastructure projects account for the majority of RICS members’ expected workloads, while residential and commercial work falters

Author:

  • Mark Williams

16 February 2023

Aerial view of rail and road systems in Dubai

Global economic growth remains weak, but the latest RICS Global Construction Monitor offers encouragement. The report suggests industry activity has picked up slightly, supported by “solid infrastructure workloads”.

While new residential developments account for a very small share of member workloads in Europe and the Americas, infrastructure projects are leading the way. This is especially so in Asia Pacific, where 63% of respondents expect their infrastructure workload to grow over the next year.

Here are four current trends in the global construction industry, revealed in the RICS Global Construction Monitor for Q4 2022.

1. The Middle East and Africa’s construction industry is experiencing the strongest growth

Three of the four regions in the report are on an upwards growth trajectory on the Construction Activity Index (CAI). While growth in the Americas is positive, it is continuing the slowdown it has experienced since Q1 2022. Conversely, in the last two quarters, Europe is reversing a decline in CAI growth, although it is still lingering in negative growth territory overall.

Looking at the country-level data behind these regional patterns, Nigeria and Saudi Arabia have very high CAI ratings, while the Netherlands and Sri Lanka show the strongest decline in construction activity.

In Nigeria, there are a number of huge projects under way, including Eko Atlantic City, which involves reclaiming nearly four square miles of land from the sea, the Lagos to Calabar railway and the Mambilla Hydropower project, which will be the country’s largest power generating site.

2. Infrastructure projects are keeping the industry busy

“At the global level and across all regions, infrastructure continues to lead the way with respect to current growth in workloads,” says Tarrant Parsons, RICS senior economist and co-author of the Construction Monitor. “At the global level, the Q4 net balance of +23% is up from a reading of +14% beforehand [the previous quarter], with a similarly positive picture for output growth reported in MEA (+27%), APAC (+27%), the Americas (+24%) and Europe (+16%).”

The table below shows how far infrastructure is outperforming residential or commercial projects as a percentage of built environment professionals’ expected workloads.

“At the global level, infrastructure continues to lead the way with respect to current growth in workloads” Tarrant Parsons, RICS’ senior economist

A look at recent industry media coverage from around the world confirms the robust health of infrastructure construction projects. China’s energy grid operator is going to invest $77bn in transmission infrastructure and energy storage systems in 2023.

India’s data centre market is expected to attract investment of $3.5bn by 2028, as 80% of the country’s corporate banks aim to move to cloud storage by next year. And spurred on by China’s spending on infrastructure, the EU has lined up 70 international infrastructure projects.

3. There are some big regional problems to overcome

When all the regional comments provided by RICS members are collated, some common global themes emerge. ‘Cost’, ‘shortage’ and ‘lack’ are three of the most prevalent words used by members worldwide.

There are also some terms frequently used on a regional basis, such as ‘World Cup’ in the Middle East and the ‘war in Ukraine’ for respondents in Europe. One term that has vanished since the Q2 2022 Construction Monitor is ‘COVID-19’, which suggests its influence on the industry is finally waning after being the dominant global concern for the past few years.

Here is a selection of comments that highlighted a variety of regional challenges:

 

“Competent contractors and engineering firms are overloaded, there is low availability of skilled workers” – Billings, US

 

“Delay in payments, shortage of manpower, and delay in advanced technology implementation, such as BIM” – Muscat, Oman

 

“Hosting of the World Cup in November and December 2022 impacted on both supply and demand sides of economy” – Doha, Qatar

 

“Unreliability and price gouging is widespread” – London, UK

 

“The cost of building and developing units is exceeding affordability” – Cork, Ireland

4. The cost of materials is still limiting construction activity

The three main factors that most respondents say are limiting construction activity worldwide – cost of materials, financial constraints and skills shortages – all eased slightly between Q3 and Q4 2022. And shortage of materials was a no longer a problem for 12% of respondents, the biggest drop between quarters.

In the UK, the Construction Industry Training Board (CITB) has stated that almost 225,000 extra workers will be required to meet construction demand by 2027. Dr David Crosthwaite, head of consultancy services at the Building Cost Information Service (BCIS), says: “Chronic shortages of both skilled and unskilled labour – likely to be exacerbated by the prevalence of an aging construction workforce – will create additional pressures.”

 

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