Looking at the landscape for 2023, the major trends in construction roll up into four categories that include various sub-categories.
For example, the sustainability category that we have been hearing so much about should really be expanded to ESG (environment, social, and governance). The trends around IoT and digital advances have all been grouped in Increased technology adoption.
We will get started with the changing labor market - not just shortages, but the underlying factors and shifting demographics.
Reshaping the labor market - overcoming skill shortages
Shortages of skilled trades in the construction industry have been the major headline for some time. The easy-to-understand reason is the aging and retirement of the most experienced individuals. Retiring skilled workers is only one-half of the equation.
The more important factor is that younger replacements are not being attracted to the industry. In a recent interview with an electrician who is leaving the construction industry, the stated reason was a history of bad management.
This electrician has been a practicing trade for over 10 years. The complaints included:
No training or career development programs.
Promotion promises are often made but don’t materialize.
The people who are promoted into management positions often lack the skill set and make bad managers. For example, competent electricians often make bad managers and make life difficult for their former peers.
These problems are entirely avoidable with proper career development and more modern HR practices.
Another reaction to this shortage is an increase in female construction workers. Construction jobs often pay more than service sector jobs.
Given this trend, the need for more up-to-date HR practices is crucial to ensure fairness on the job site. We go into more detail on this topic in the ESG trend section below.
Environmental, Social, and Governance (ESG)
Environmental considerations or 'going green' is often mentioned as an important trend but falls short of the whole story.
ESG is a more complete way to think about corporate responsibility in 2023 and beyond.
Environment replaces 'going green' and includes policies around safeguarding the environment specifically and climate change more broadly.
The construction industry contributes 23% of air pollution, 40% of water pollution, and 50% of landfill, according to the World Watch Institute.
On the topic of climate,Building operations account for nearly 40% of atmospheric carbon according to the United Nations Environmental Program. The sector’s carbon footprint has actually increased over the past few years.
Clearly, every construction company needs to have a specific, published strategy around recycled material, carbon footprint, and hazardous waste.
Social includes operating policies that affect employees, suppliers, and customers. Social also includes a company's relationship with the community.
Just as construction has historically been a laggard in technology adoption so has it lagged in ESG. As noted above, one of the main reasons for labor shortages is the lack of HR oversight on the job site.
And while there has been an increase in female employees, the industry as a whole does not have a good reputation for diversity and inclusion.
As studies show, companies, including construction companies, benefit from increased profit and productivity if they embrace diversity and inclusion.
The construction industry should be especially concerned with its relationship with the community since it’s product is a fundamental building block of any community.
Construction profit goals are often at odds with community values.
Governance considers leadership and how compensation, shareholder rights, and internal controls are implemented.
One of the reasons that the construction industry should care about governance practices specifically and ESG, in general, is that a growing number of investors include ESG scoring in their portfolio decisions.
Access to capital may depend on a demonstrable ESG policy.
Inflation - have we seen the worst of it?
A triple inflationary threat is here for 2023. This is coming from increasing labor, material, and finance costs.
The shortfall in labor is causing upward pressure on wages not to mention extra costs associated with delays due to understaffing.
There is no end in sight for this pressure until the industry can prove that it treats employees fairly with a modern HR policy. Every company has the power to change this practice.
Global supply chain issues have had a similar impact on construction as they’ve had in automotive and Hitech.
Of course, supply chain issues are not just about material price inflation, they also negatively impact project timelines and labor schedules which increases costs.
The good news, global supply chains are expected to be fully recovered by mid-2023.
And finally, inflation is driving interest rates up which will drive up project costs and reduce margins. In the longer term, it may also slow down new construction and depress the industry.
2023 interest rate projections are predicting one or two more hikes. This will continue to pressure carrying costs versus the low of 2008, which was .25% in the US. On the other hand the 50-year interest rate average is 5.42% which is roughly the rate that is projected for 2023.
Interest rates may in fact just be returning to normal.
Increased technology adoption - innovation vs stagnation
With the influx of venture capital into the construction marketplace, considerable innovations are on the horizon. This trend offers the greatest opportunity for improved efficiency and profitability.
Some of the leading-edge technologies include 3D printing, AI-assisted imagery, networked sensors, and better project management.
3D printing is one technology that offers benefits across every important variable including reducing construction costs and time and improving sustainability.
Since BIM (Building Information Modelling) is in widespread use, CAD models are available to put into immediate production.
AI-assisted imagery this technology in combination with IoT and sensor data offers one of the biggest advances in construction site efficiency and safety.
One of the biggest problems with current project management platforms is they are only as good as the inputs and don't integrate real-world data such as whether building materials show up or if a particular crew is on site.
From a safety standpoint, can we detect unsafe practices and stop them before an accident occurs?
AI-assisted construction site imagery can address these problems and more.
IoT and sensor data
In a similar way that AI-assisted imagery can help understand actual job site status, so can sensors. This can include accurate supply quantity and location, equipment movements, and more.
The main limitation of construction project management systems is the lack of accurate data. As mentioned above, technologies are entering the market that will improve accuracy and therefore make better recommendations and more accurate forecasts.
The above is by no means a complete list of all of the innovations that will be available in the coming years. Rather it's a wake-up call to ensure that your internal teams have the expertise and are constantly evaluating new technologies. This is one of the most promising factors to improve efficiency and profit margins.
A cleaner, brighter future
As discussed above, there are opposing forces working to reduce or improve efficiencies in the construction sector.
Looking at inflation, we are returning to a 50-year average cost of capital. This should be easy to incorporate into your business model going forward.
The shortage of skilled labor might sound hard to address on an individual company level but there are strategies that can help.
Number one, include diversity and inclusion programs in your hiring and management practices in order to attract a more diverse workforce.
Incorporate training programs both in terms of teaching skills and also management training. Stop promoting untrained workers into management roles.
Create a technology steering committee in order to keep up with emerging trends.
Have a safe, profitable, and above all ESG forward 2023.