Outlook for The Construction Sector in 2023 and Focus On Growth Despite Macroeconomic Headwinds

Construction firms of all sizes face a variety of challenges, but there are additional opportunities for organisations that can adapt and capitalise on larger industry trends while reducing risk and maintaining healthy profit margins.

FREMONT, CA: The possibility of a recession, continued inflation, severe labour shortages, and supply chain issues will all have a significant impact on construction in 2023. Furthermore, there is much speculation about whether interest rates will rise further, so there is an opportunity for construction firms that are well-prepared and have the flexibility to change routes as needed.

Civil & Infrastructure

The total number of construction begins is expected to stay unchanged in 2023, but a significant shift like the work appears immediate. In terms of pure dollar amounts, the construction industry is likely to see more civil and infrastructure work than single- and multifamily housing or some types of commercial construction, which have previously dominated the construction landscape.

Along with the opportunity, however, will be the ongoing impact of inflation, rising interest rates, and other financial factors, such that a project that cost one million to build a few years ago could now cost a twenty-thirty per cent more and larger contractors may have the resources, organisational depth, and financial capacity to deal with these shifts, whereas smaller businesses may need to look into alternatives. Joint ventures (JVs) could be an appealing way to respond to large-scale infrastructure projects and/or increased infrastructure opportunities in general. Joint ventures have previously served as ways for contractors to pool their talent, experience, equipment, and administrative, and financial resources to tackle larger projects or backlogs. For some, a merger or acquisition with a competitor may present an opportunity to broaden your firm's capabilities. If the numbers add up, this can be a useful tool for expanding their business into new locations and regions, or for adding specialised equipment or expertise.

Renovation and Rehabilitation

The current market presents additional challenges as some industry segments and owners shift away from new construction and towards rehabilitation and renovation projects. The conversion of shopping malls and warehouses, for example, has been accelerated as a result of the pandemic and the shift to more online shopping. Mall traffic has slowed in recent years as shoppers prefer to shop locally. Especially during the process work may be difficult for contractors who have traditionally focused on new construction, depending on the project's complexity. There is no way to know the quality of work done on the facility when it was built, or how frequently or well it was maintained. Furthermore, depending on its age, the building may contain toxic chemicals. Contractors should stay up to date on construction code changes and use innovative equipment and methods such as laser scanning, hygrothermal wall analysis, and computational fluid dynamics modelling to help mitigate risk.