As 2022 ended we looked back on a momentous year and early indications are that the outlook for 2023 is looking perhaps even more challenging. As we continue to grapple with the impact of Covid-19, Brexit, and the war in Ukraine, this month Martyn Jones offers some timely advice for clients on addressing two dilemmas they now face: Whether given current economic and market uncertainties to build now or delay, and, if the case for building is persuasive, how to build.
Construction has been surprisingly resilient in 2022 but according to data collected and analysed by the Building Cost Information Service (BCIS), total construction output has only just reached pre-pandemic levels, largely driven by growth in the repair and maintenance sector – but new work output is still below 2019 levels.
High energy-use components, including steel, concrete, and plasterboard, as well as specialist labour, are expected to continue to experience inflationary pressures until the energy crisis is abated, while construction businesses are going bust at their fastest rate in a decade.
The good news is that price increases now appear to be slowing, suggesting we are past the peak of inflation.
But the outlook for construction continues to be challenging for the immediate future, with BCIS forecasting that new work output in the construction industry will not reach pre-pandemic levels until 2027. That’s almost eight years of no real growth in the sector.
The Glenigan Construction Industry Forecast 2023 -2024 has also identified the headwinds we face including stalled UK economic growth, the disruption to UK business revenues, and declining confidence curbing private sector investment growth.
As far as housebuilding goes, in their view, weak real earnings growth, together with higher interest and mortgage rates, will check housing market turnover and dampen private house building activity over the next two years.
Public sector spending restraint will limit public sector investment and curb construction activity in areas such as health and education but the government will seek to accelerate the delivery of new infrastructure projects and lift overall civil engineering activity.
Given this uncertain economic backdrop, let us turn to the key dilemmas facing construction clients. First whether to build at all right now, or to delay investment until the economic and political landscape is less uncertain.
And second, if deciding to press ahead with a development, how should clients procure their project or pipeline of work. Should they be lured by the short-term view and the current buyer’s-market to base their procurement on what is the cheapest price right now.
Or should they take the value-based, longer-term approach to development, working collaboratively, transparently, fairly, and creatively with their advisers, partner consultants, contractors, and deliver value-based not price-based outcomes despite the challenging circumstances.
This is where the two latest publications from CESW can play their part. First, the Client Advisor Guide. This makes the case for timely, insightful professional advice for clients at the beginning of a project, including confronting the fundamental question of whether to proceed or delay. Or even maybe advising achieving business objectives in other ways such as changing internal organisational structures, working practices and processes, or making better use of existing built assets.
Having decided to proceed and build, clients need to work with their trusted advisers referring to the CESW publication, the Enlightened client’s journey to quality and compliance, which aims to capture what enlightened clients can do to chieve an exemplary standard of quality and compliance – even during challenging economic and market conditions.
Whatever your standpoint as a client and how you and your construction partners address these dilemmas, we wish you a Successful 2023, whatever it brings.
