Building Strong Foundations

2017.05.12 Font size: Share

We analyse growth forecasts and key trends in global construction markets.


ISMR SAYS: "Prevalent trends in construction include pre-fabrication/modular construction; energy-saving building systems; smart buildings; interest in the use of UVAs(unmanned aerial vehicles) for survey purposes and interest in 3D printing and robotic automation"

 

The pace of expansion in the global construction industry steadied in 2016, standing at 2.4%, but there will be an improvement in the next five years, with growth averaging 2.8%according to the 'Global Construction Outlook 2021', a new report from Timetric's Construction Intelligence (CIC).


"In real value terms (measured at constant 2010 US$ exchange rates), global construction output reached US$ 8.8 trillion in 2016 – up from US$10.1 trillion in 2021. The value of construction activity in the emerging world (at real 2010 US$ exchange rates) surpassed that of advanced economies in 2014, and this difference will continue to widen. In 2012, emerging markets accounted for 46.7% of global output – a share that will rise to 52.8% by 2021", said CIC.

 

The global construction equipment market is characterized by the presence of several prominent vendors in the market. In this market, vendors compete on the basis of price, quality, innovation, after-sales service and distribution to gain maximum market traction.


Global growth forecasts


"Asia-Pacific" will continue to account for the largest share of the global construction industry, given that it concludes the large markets of China, Japan and India. However, the pace of growth will be slow, given the relative sluggishness in China's construction industry, the expansion of which will be undermined by the glut of new residential property. The emerging markets of Southeast Asia, notably the Philippines, Malaysia and Indonesia, will invest heavily in new infrastructure projects, supported by private investment," continued CIC.


According to the new report, the US construction industry is set to continue to post relatively solid growth over the forecast period, supported by the residential sector. Reflecting the extend of the downturn in the US in real terms, the construction industry will just be returning to pre-crisis highs by 2021. Canada' s construction industry has been sluggish, and it will prove difficult over the forecast period to generate fast growth momentum. However, investment in the New Canada Building Plan will provide support.


Asia-Pacific will continue to account for the largest share of the global construction industry.

"Reflecting the extent to which the industry slumped after the financial crisis, by 2021 the value of construction output in Western Europe will stand at US$ 2.15 trillion (in real 2010 US$ terms), which is still below the US$ 2.25 trillion recorded in 2008. Over the forecast period, most markets will recover to spending levels above the pre-crisis highs but this will not be the case in France, Italy, Spain, Greece or Portugal. The Eastern European construction industry will be relatively weak over the forecast period. This primarily reflects the troubled state of the Russian economy, weak commodity prices and political and economic uncertainties. Furthermore, sharp contractions were recorded in Poland, Hungary and the Czech Republic, owing to delays in the disbursement of EU funding," added CIC.


Increasing rates of urbanisation in emerging economies, such as China and India, and the development of new cities are major drivers for the growth in the infrastructure segment


Construction activity in Brazil has been weak in recent years, following a sustained recession which resulted in a deteriorating business environment, weak investor confidence and reduction in construction activity. Weak commodity prices will constrain investment in new mining-related construction activity. However, Chile, Peru and Colombia will post solid growth over the forest period, supported by the need for housing developments and improved infrastructure.


"Although the Middle East and Africa will have the best-performing construction industry of any region in the world, the pace of growth will be relatively subdued compared to the rampant expansion recordedduring the early years of the review period (2012–2016). Efforts to shift from a reliance on oil will involve investment in infrastructure and non-oil industrial and commercial zones, which will drive construction activity in many countries in the Middle East and North Africa," concluded CIC.

According to a new market report by Lucintel, the future of the global construction industry 'looks good with opportunities in residential and infrastructure segment'. It forecasts that the global construction industry will grow at a CAGR of 5.5% from 2016 to 2021. The major drivers of growth for this market, it says, are increasing rates of urbanisation and growing populations.

The global construction industry falls mainly into three types; residential, commercial and infrastructure. Lucintel forecasts that infrastructure will remain the largest segment during the forecast period. Increasing rates of urbanisation in emerging economies, such as China and India, and the development of new cities are major drivers for the growth in the infrastructure segment. Lucintel forecasts that the infrastructure segment is expected to show the highest growth during the forecast period.

The APAC construction market is expected to remain the largest market due to the rapid growth in rising per capita income, along with increasing urbanisation in the region. Asia Pacific and North America are expected to witness good growth, over the forecast period, with growing housing starts and infrastructural development.

For business expansion, the report suggests geographical expansion and new project development. Emerging trends, which have a direct impact on the dynamics of the industry, include the increasing demand for green construction to reduce the carbon footprint; bridge lock-up devices to enhance the life of a structure; building information systems for efficient building management and the use of fibre-reinforced polymer composite for the rehabilitation of ageing structures.

Efficiency improvements of the scale required will only be achieved if the industry evolves - and develops leaner, more collaborative ways of working across the supply chain

Construction equipment


Technavio's market research analysts estimate that the global construction equipment market will grow at an impressive CAGR of around 12% by 2020. Urbanisation, they said, has led to the increased demand for infrastructure development projects such as the construction of roads, sewage facilities, transit systems and mega cities. This augmented need for better infrastructure facilities will spur growth in the construction equipment market during the predicted period.
  
"An increase in urban population and living standards is leading to a rise in the construction of high-rise buildings. APAC had the highest number of high-rise buildings under construction in 2015, accounting for around 74% of the total number of high-rise buildings," said Technavio.

"The earthmoving equipment segment currently accounts for the largest market share and is expected to continue its dominance over the market until 2020. The APAC region currently accounts for around 60% of the total market share and is expected to grow steadily at a CAGR of around 17% during the forecast period. Augmented investments in infrastructure development across all regions in APAC are expected to propel growth in the construction equipment market during the predicted period," it added.

Factors such as growing urban population and rapid urbanisation are resulting in the increased demand for new transport and utility infrastructures. This increase in demand for new transport and utility infrastructures will result in the strong growth of this market in APAC until 2020.

The global construction industry is expected to grow over the next decade—especially in the rapidly emerging economies of Asia, Latin America, the Middle East, Africa and Eastern Europe. Fuelled byurbanisation, globalisation, infrastructure renewal and the burgeoning needs of developing 'megacities', construction in emerging markets is expected to double within a decade and will become a US$ 6.7 trillion business by 2020, accounting for some 55 per cent of global construction output, according to the 'Global Construction 2020' report published by Global Construction Perspectives and Oxford Economics.

To benefit from trends in the construction industry, consultant Accenture recommends that companies look at adopting new construction industry strategies to better position themselves to manage the supply side and capture the increased demand.


Key construction trends


Prevalent trends in construction include pre-fabrication/modular construction: energysaving building systems; smart buildings; interest in the use of UAVs (unmanned aerialvehicles) for survey purposes; interest in 3D printing and robotic automation.

"The global construction industry is diverging as markets are buffeted by opposing forces – overstretch in booming economies and downturn in markets that rely on commodity exports or trade with China – according to our international construction market survey in 2016," explained analyst, Turner and Townsend.

The survey analyses input costs – such as labour and materials – and charts the average construction cost per m2 for both commercial and residential projects in 38 markets around the world.

"At nearly US$ 3700 per m2, average construction costs in Zurich are the highest in the world, closely followed by New York (US$ 3650 per m2) and London (US$ 3550 perm2). However, these cities are being rapidly caught up by the tech hubs of San Francisco (US$ 3400 per m2) and Seattle (US$ 2800 perm2)," said the analyst.

At the other end of the inflationary scale, Beijing's construction costs tumbled by 10 percent in the year (2016) to April – an acceleration of a downward trend that saw costs fall by 5 per cent in the previous year. The report predicts that prices will remain stagnant in the Chinese capital over the next year.

In a reflection of the weakness of demandin oil-reliant economies, the research also predicts zero cost inflation over the next 12-months for the United Arab Emirates and in the Omani city of Muscat. "Two macro-economic factors – the sharp fall in oil prices and China's slowdown – have rippled across the global construction industry over the past year and triggered a rapid polarisation of the market," commented Steve McGuckin, Global Managing Director – Real Estate, Turner & Townsend.

"Some regions are now facing acute overstretch, with construction demandoutstripping what the industry is able to supply. Meanwhile in markets with a heavy reliance on either trade with China or on commodities exports, both demand and levels of investment have fallen. However, against this divergent backdrop, some challenges – and some solutions – are universal. Chief among the challenges is an endemic skills' shortage, which risks driving up construction costs even in markets with weak demand."

In overstretched markets, he warned, both contractors and their clients must take urgent action to improve efficiency and keep cost inflation in check, while those operating in subdued markets should seize the opportunity to strip out waste and get the skills' mix right for when demand returns.

"While advances in technology such as Building Information Modelling (BIM) and modular construction can help, efficiency improvements of the scale required will only be achieved if the industry evolves - and develops leaner, more collaborative ways of working across the supply chain," he concluded

(From: ISMR)