Growth in Construction: What to Expect in 2022

The last two years have been a curious time for construction: the shutdowns of 2020 have been followed by the uncertainties and rising prices of 2021, and recovery has sometimes been heralded and at has at other times stalled. As in many other sectors, progress has been stop-start during this period, and planning has proven difficult.

2022 offers an opportunity to refresh, however with several positive developments on the horizon which bode well for the sector in the coming year. While new building regulations continue their passage through Parliament – and businesses will need to keep an eye on these, and the changing political and practical landscape that shapes them – builders are hopeful of getting back to what they do best.

Most importantly, demand is up. According to Construction News, “New orders rose at the fastest pace in four months in December” of 2021 – and this during a period when the impact of the Omicron variant was unclear, and potentially may have been even worse than it turned out to be. This suggests that demand will stiffen now that Plan B measures have been lifted – and the decrease in activity on construction sites seen in December will be rectified with new business.

Even better, there is a suggestion in another article at Construction News that good news on costs is on its way, too: “Rising construction costs have dogged the industry in 2021, but this eased as the year ended.” If logistics problems do indeed unspool, and prices lower, then increased demand will be met by smoother supply – and construction will be in a more positive place than it has been in some time.

Material prices stayed flat in December for the first time since 2020. Material costs bedevilled the sector throughout 2021, even causing some firms to collapse. But the Department for Business, Energy and Industrial Strategy (BEIS) recorded no rise in these prices during November 2021 – two key products, steel and timber, even reduced in price. This is a potentially very good sign for the rest of 2022: steel and timber in particular saw some of the most eye-watering price increases during 2021, and firms will welcome a reversal of this trend.

“This is a single month’s statistics set against the backdrop of many months of contractors’ workloads being threatened by rising costs,” Civil Engineering Contractors Association (CECA) chief executive Alasdair Reisner has said. “We hope this is the beginning of a trend in costs levelling off for our members after a prolonged period of cost pressures, and that this trend will continue into 2022.” Vistry has also noted that supply chain pressures have begun to ease, so Reisner – and everyone in construction – may be granted this wish.

Of course, risks remain: COVID has demonstrated its capacity to surprise us all, and many countries worldwide are still significant impacted by the pandemic. In the UK, government rhetoric is positive – but caseloads remain high, and illness will disrupt staffing. Indeed, according to the IHS Markit/Cips UK construction purchasing managers’ index (PMI), growth dipped in December – from a rate of 55.5 in November to 54.3 in the last month of the year. But that hit while the country was in the grip of new coronavirus restrictions might be survivable.

Perhaps that’s why industry observers remain optimistic: Gareth Belsham, director of national property consultancy and surveyors Naismiths, is quoted in the Scotsman sounding hopeful. “Despite the slowing headline rate of growth, the PMI’s latest snapshot of the construction industry is mostly rosy,” he said. “Even with the disruption caused by the Omicron variant, business sentiment remains strong – with half of construction firms predicting further increases in demand during 2022 – and inflationary pressure is easing.”

That article notes that civil engineering in particular suffered towards the tail-end of last year – but a rising tide lifts all boats, and there are several areas of potential growth that should help even those parts of the construction sector that did fall into negative growth during December realise the promise of 2022.

In Property Week, Allan Wilen lays some of these out. He breaks down the positive signs into three key areas of potential growth: increases in private and social residential activity; strong growth in health and industrial projects; and belated recovery in hotel and leisure. The shared theme among all three is that wider economic growth and trends will feed back into construction: rising interest rates and lower earning power will dampen but not kill off the residential boom; persistent demand for logistics and healthcare space will drive activity on those sites; and the long-delayed hospitality recovery – and return of widespread tourism – will turbo-charge demand there.

“To thrive in this shifting landscape,” Wilen writes, “property firms and industry professionals need to act with agility and flexibility.” Supply-side constraints will continue, and demands for cost-efficiency maintained – but the context is changing, and with it so too are the fortunes of construction firms. 2022 is set to be a better year than the sector has experienced in a while.