Despite facing a rather volatile market in 2023, the construction industry is expected to get back on its feet in the coming year. In this blog, we look ahead to what 2024 has in store for the sector, as well as key challenges still on the horizon.
What hurdles did we encounter in 2023?
Slump in demand: A lack of economic growth and a spike in interest rates resulted in delays in planned investments early this year.
Increased mortgage costs: Inflated mortgage rates have led to a considerable decrease in housing starts. We have since seen developers shift their focus towards completing existing projects, rather than starting new ones.
Staffing shortages: The challenge of a skills gap and the competitive landscape for securing top talent persist. By the year 2027, the sector is projected to require an additional 225,000 workers.
What can we expect in 2024?
It’s not all doom and gloom…
While inflationary pressures have been on the decline, and construction output prices have witnessed a decrease from their peak in July, the current landscape sees them merely 1.9% higher than January 2023 as of September. As we near the year-end, the industry is experiencing significant alleviation in cost pressures, primarily attributable to reduced prices of construction materials, a softening in shipping costs, and a decline in natural gas import prices.
These ongoing trends have resulted in construction output volume surpassing the levels observed at the beginning of the year by 2% by September. Notably, the growth is propelled by repair and maintenance (R&M) projects spanning all sectors.
Challenges to consider in 2024
While growth is looking likely, it is important to consider the following limitations in 2024…
Extended lead times
Protracted lead times, a prevalent challenge in the construction industry, contribute to delays in project initiation and completion. The extended duration between project conception and execution can stem from various factors, including intricate regulatory processes, intricate approval procedures, and complexities in the supply chain.
Escalating construction costs
The persistent rise in construction costs poses a significant obstacle to project viability. Increased expenses for materials, labor, and other essential components can strain budgets, leading to financial challenges for construction endeavors. Fluctuations in commodity prices, geopolitical factors, and supply chain disruptions are among the key drivers influencing escalating construction costs.
Investment hesitancy
A prevailing lack of confidence among stakeholders to invest in new projects hampers industry growth. Economic uncertainties, market volatility, and apprehensions regarding return on investment contribute to this hesitancy, impacting the initiation of crucial construction ventures.
Government red tape
Excessive bureaucracy and regulatory hurdles, commonly referred to as government red tape, pose a considerable impediment to construction projects. Cumbersome approval processes, complex permitting requirements, and intricate compliance procedures can extend project timelines and inflate costs.
While these challenges are something to consider, things are looking up for construction and we expect to see signifcant growth in 2024: driven by emerging prospects in warehousing and logistics, office spaces, and the revitalization, fit-out, and repurposing of unused commercial properties.
Looking for top-tier staff to give your business a boost ahead of the new year? Pillar Partnership specialises in built enviroment recruitment and has a track record for delivering the best candidates in the marketplace.Give us a call on 0203 856 4048 to get started.