Are signs of stability emerging in construction markets?

The steep fall in construction markets activity seen earlier in 2020 eased significantly in the last quarter, despite ongoing economic uncertainty, according our latest Global Construction Monitor.

Key points:

• Construction activity contraction far less severe in Q3, with RICS’ activity indicator standing at -9, compared to -24 in Q2, led by more robust figures from China
• Infrastructure has driven this improvement with growth in IT sub-sector in particular
• As focus shifts to building back better, measurement of carbon emissions on projects falls short

Our Global Construction Activity Index¹, a measure of current and expected construction market conditions among construction professionals read -9 in Q3. While this represents an ongoing deterioration in activity, this was far less severe than in Q2, when the reading stood at -24, reflecting the impact of governments’ fiscal stimulus measures, and the reduced drag of lockdown measures.

While conditions are still negative in regions, they are less so in Asia Pacific (-6), driven by a brightening outlook in China. The Middle East and Africa and Europe both report a much more modest deterioration than in the previous quarter, improving from -40 to -11 and from -27 to -11 respectively.

Infrastructure investment key to recovery as IT sector takes off

Work on infrastructure projects has underpinned the improved, albeit subdued, outlook, and is expected to lead the global recovery over the next year. The infrastructure sector proved more resilient than other sectors during the second quarter, and has remained so across most regions in Q3. Respondents report that it is the only sector that is growing at a global level, largely driven by a pick-up in activity in China, where a net balance of +53% of respondents noted an increase in infrastructure workloads.

The information and communication technology sub-sector has been a clear beneficiary of the dramatic socio-economic changes COVID-19 is driving. Globally, it was responsible for the growth in the overall infrastructure sector, with 24 out of 26 markets surveyed reporting increasing workloads.

Looking ahead, the outlook for infrastructure is especially positive in Asia Pacific and the Middle East and Africa. Outside of China, the outlook for infrastructure workloads is particularly robust in Australia, New Zealand, the Philippines, Sri Lanka, Saudi Arabia, Nigeria and Qatar. Although in Europe private residential workloads are expected to be the first to recover, respondents in Italy have an upbeat outlook for infrastructure. In the Americas, the outlook for infrastructure in Canada is particularly strong.

Simon Rubinsohn, chief economist, RICS, commented:

“Sentiment, while still depressed, started to improve in the last quarter, with infrastructure central to this. However, a second wave of the pandemic in many countries brings a new layer of uncertainty to construction globally, just as signs were emerging of the market beginning to find its feet.

“Amid the heightened economic uncertainty caused by rising infection rates and stricter lockdown measures in several parts of the world, governments’ fiscal interventions will dictate the speed and scale of recovery in construction; professionals in the sector are clear that infrastructure spending will be a key driver in any bounce back next year.”

Sustainability moves to fore in drive to build back better, but carbon metrics lacking

As focus intensifies on how economies can build back better following the pandemic, sustainability is a priority for a growing number of new projects. Globally, around 37% of professionals believe that building resilience to extreme weather as a result of climate change is considered important for the majority of new projects.

Meanwhile, circular economy practices are becoming more popular too. Around 44% of contributors believe the demand for recyclable and re-usable materials has risen in the past year, with slightly higher figures across APAC and Europe.

Despite this, there is still insufficient measurement of the environmental impact of construction projects.
Almost two-thirds of professionals state they do not measure carbon on projects. Significantly, this share is higher across the Middle East and the Americas, standing close to 77%.

And even when carbon emissions are measured, it is not yet having a meaningful impact on the choice of materials and components used. Indeed, around 19% of respondents claim that they do measure carbon but this does not substantially affect the choice of materials and components. Critically, only 18% of participants state that embodied and operational carbon is both measured across projects and that it also significantly affects the choice of materials and components.

Alan Muse, Global Director of the Built Environment, RICS, commented:

“With construction accounting for 39% of all carbon emissions, there’s no doubt that making our sector more sustainable is vital to a greener recovery from COVID-19. However, global standards in carbon metrics are badly needed to make this possible.

“A lack of global standards militates against the consistent collection of data, which means project trade-offs between capital and life cycle costs and embodied and operational carbon are made with a lack of comparability and consistency. That is why RICS is working with other worldwide professional construction bodies to extend ICMS into carbon accounting for construction. Building back better and greener will only be possible if pragmatic toolkits are developed collaboratively by professionals, for professionals: ultimately improving day to day design and construction decisions.”

Note:

¹The Global Construction Activity Index is a weighted composite measure encompassing variables on current and expected market activity as well as margin pressures.

Kindly shared by Royal Institution of Chartered Surveyors (RICS)

Main article photo courtesy of Pixabay