Global Construction Sector Market Size set to reach $19 trillion, says Beroe

RALEIGH, N.C., Dec. 12, 2022 /PRNewswire/ -- With a CAGR of 11.8 percent, it is predicted that the market size of worldwide construction sector will increase from $15.17 trillion in 2022 to $18.96 trillion in 2024. With around 40% of the market, the APAC region has the largest share, followed by Europe and North America. Countries such as the U.S. and India want to invest heavily in the construction of infrastructure. $1 trillion has been set aside by the U.S. government for development. 

With an upsurge in residential, commercial, and infrastructure projects worldwide, building activity has returned to normal. Construction materials' supply-demand dynamics are improving as a result of manufacturers' increasing production.

APAC, the largest shareholder in the construction industry, is expected to reach up to $6.1 trillion with a CAGR of 4 -5 percent. While in North America, the market is expected to grow at a CAGR of 4.8 percent to reach $2.43 trillion in 2024. 

With the growing population demanding an increase in residential construction, the Indian government has increased its share of the budget on infrastructure to improve road connectivity. 

Globally, construction services are being severely impacted by geo-political unrest and pressures from inflation. Since fewer investment proposals were made due to rising risks throughout the regions, demand for high-value new projects remains sluggish. Governments are concentrating on maintaining infrastructure improvement as an economic engine, which has resulted in constantly rising infrastructure investment. There are inflationary pressures on commodities that affect the construction business.

The cost of construction is determined on the basis of four major components: cost of materials, cost of labor, cost of construction equipment, and administrative expenses. Labor costs contribute a maximum of 35–40 percent of the overall cost of construction. Labor costs differ widely, depending on the availability of skilled labor in a particular region. With rising demand from the building and other industries in several countries in Europe, the U.S., and Australia, prices of commodities like cement and concrete are anticipated to rise steadily.

The shortage of truck drivers affects the logistics of raw materials for the construction industry, which is a serious threat to contractors. The supply of skilled labor is less for construction work despite the higher labor wages. Moreover, the volatile price nature of oil impacts the production and transportation of construction materials. Also, many countries in Europe have a strict policy for migrant workers, and geo-political uncertainties could further trigger price inflation.

The labor wages have increased to match the inflation rate, and raw material prices have increased due to the increase in production costs. This results in an increase in overall construction costs. Input cost to construction increased manifold in the majority of regions. Double-digit construction commodity price inflation is being witnessed in major regions due to global uncertainties and tensioned supply chain networks.

Construction supply improved over the last quarter, and the order books of major contractors signal the expansion of capacities with a positive outlook. However, competition in the market and price inflation are hitting the margins of suppliers.

Major countries are providing economic stimuli and investing in creating and upgrading critical infrastructure to counter economic stagnation amid fears of a recession.

In order to reduce short-term price shocks in the present market volatility, the suppliers are concentrating on creating new contracts with longer project durations and larger average project tickets. Due to this, the supplier can decide to accept the project with lower margins. 

Selecting a Supplier in the engineering construction market is not an easy task: the top 10 firms hold more than 70 percent of the market share. The housing construction sector is predominantly held by regional construction firms with a high market share. Due to the pandemic, the majority of the firms suffered net losses in the quarter, heavy competition will be prevalent among the top suppliers, especially in the infrastructure segment and top clientele for suppliers could get discounts or lower, as contractors will try to secure more contract awards and keep their market share

Sourcing in the Civil construction market is partly different from the commodity market. If there are partnership agreements, the contractor is engaged through an EPCM contract. Else, a supplier is chosen from the centralized list of preferred suppliers maintained by the Global Category Lead. Therefore, as a part of the best practices implemented by this segment, supplier shortlisting is either centralized or regional for capital projects. The strategic sourcing team, after analysing past project outcomes and in-depth market and supplier analysis, suggests 2–3 suppliers that are shortlisted from 10–15 suppliers maintained in-house.

Cost savings will be supported by sourcing from environmentally friendly vendors. For long-term, sustainable cost reductions, it's important to recycle, use renewable energy, and reduce trash.

For internal project budget estimation, a highly qualified cost estimator or consultant is needed. The industry depends on highly qualified cost estimation experts or consultants for projects where the buyer lacks knowledge in order to fully comprehend all expenses.

The construction market report by Beroe suggests that the civil construction sector has been contemplating preliminary actions to ensure sustainability and growth. Following are the Best Practices for sourcing: SLAs and KPIs followed by the industry:

• Budget & Schedule-based KPIs: This measures the number of projects in the portfolio that have been completed before or on a date. The start and end dates are calculated and the design is to be completed within the set time period. Percentage of budget or better (measures the cost stated at the time of tender and the actual cost incurred at the end of project completion)
• Penalties for liquidated damages: The contractor is responsible for delays with penalties attached; for example, it is common to charge the contractor a percentage of the completed work as a penalty.
• Accessing Labor Productivity: Especially in cost-plus, GMP or materials + time contracts, labor productivity must be measured and must be incentivized accordingly.
• KPI based on Pricing models: Lump-sum must have KPIs to monitor quality and schedule (giving higher weightage points). Cost-plus must have KPIs to measure price and schedule.
• Designing the right KPI based on Capex plan objectives: Key to KPI/SLA success is to monitor, document, and assess the supplier's performance. Final results need to be well-represented and easy to understand for top management executives.

The demand, supply, and regional competition drive the construction market ecosystem and will eventually lead to sustainable growth. Extrinsic factors like urbanization, population growth, and the economic upswing in emerging countries speculate growth in the General/civil construction services market in the near future.

About Beroe

Beroe is a global SaaS-based procurement intelligence and analytics provider. We deliver intelligence, data, and insights that enable companies to make smarter sourcing decisions – leading to lower costs, reduced risk, and greater profits. Beroe has been a trusted source of intelligence for more than 15 years and presently partners with 10,000 companies worldwide, including 400 of the Fortune 500 companies.

Learn more about Beroe - https://www.beroeinc.com/

Media Contact – Debobrata Hembram ([email protected])

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SOURCE Beroe Inc.