Nov 06 2015

2016: Outlook is good, with known constraints

Construction News SummitConstruction News held their annual summit in Westminster this week (CN Summit 2015).  In contrast with ICE BIM, Project Controls Expo and other construction industry events we have attended recently, the value of the CN Summit is that it provides a high-level view of the UK economy and the prospects for construction, infrastructure and real estate over the next 10 years.


UK economic prospects are good for 2016 and beyond    

Global growth in 2016 – Already moderate global growth prospects have been revised down for 2016, reflecting the slowing of China and continuing issues in the Euro zone.  This is supported by the Bank of England’s Inflation update yesterday. 

UK growth in 2016 Amongst the major advanced economies, the UK will see the highest growth in 2015.  This is set to continue in 2016 for the rest of the decade, with only the US predicted to have higher annual growth rates.

As our biggest trading partner, the key external risks to the UK economy is the Euro zone not picking up sufficiently, whilst the softening of the Chinese economy is less of a risk. 

Prospects for the AEC industry – Although Q3 was slow (likely due to caution around the outcome of the general election), Construction, together with Manufacturing and Services, will be a top growth contributors to the UK economy.

The view that the industry is in growth mode, with private and public investment picking up, seemed to form the consensus view amongst contractors and the supply chain as well as investors and developers.


Low margins, labour shortages and speed of adoption of technology are industry constraints 

Within a relatively good economic environment, the view is that there are continuing constraints within the AEC the industry that need to be resolved.  Whilst none are new, their combined pressure is increasing, and forms the cautionary note for 2016:


  1. Margins are low

Margins are tight particularly with legacy jobs from the recession, and Government clients in particular are demanding more for their money.  As a result, increased efficiency, early involvement of stakeholders and the use of techniques such as offsite manufacturing and digital construction methods (BIM) will become increasingly relevant to more parts of the industry.


  1. Capacity is a pressing issue 

The combination of skills shortages and a general labour shortage across the industry means pay levels are rising.  This will be exacerbated as major projects such as HS2, Thames Tideway and UK airport expansion come online.

Competition between projects for the best people will rise, and labour from overseas will continue to be needed into the medium-term.  There are regional variations in capacity and skills, and this an area that offsite manufacturing could take advantage of, to fill the supply gap.

A longer-term solution to the labour shortages is to improve the image of construction, to make it more relevant to what the construction actually involves in the 21st century.  The message that there are a wide range of job roles in construction, those that involve work on construction sites and those that are about effective management of data or integration of technologies, and many in-between.  This would also go part way to attracting recruits from a wider part of the population in order to fulfil demand.


  1. We could work smarter 

Construction still lags behind other industries in terms of adoption of technology.  The industry now accepts this, and has made/ is making big leaps in adoption of technologies to support the implementation of BIM for example. However this still needs to permeate beyond a few innovative main contractors and consultants to the core of the supply chain.

Taking information from the construction of a complex asset and using it to help operation is not a new idea in many other industries (eg aviation and marine engineering).  Private housing developers such as Essential Living are leading the pack here, using a common data environment (CDE) to improve the management of assets during its in-use life, both to reduce costs and to increase resale values.

It’s not just technology that is an issue, collaboration is still a challenge.  There are now alternative CDE solutions available, but getting the whole supply chain to buy into collaborative processes and use the technology appropriately remains difficult. This point was also one of the challenges cited by presenters of BIM in Action case studies at the recent ICE BIM.


Predictable investment is key for stability 

The national infrastructure plan was roundly welcomed by the audience as bringing a much needed degree of certainty to the construction pipeline.  And whilst the Comprehensive Spending Review (due in three weeks) will likely reduce some of this investment, a predictable pipeline of work allows companies to invest in the skills and technology needed to overcome the challenges discussed above.

In conclusion, 2016 and beyond looks positive for the AEC industry, with the challenges of labour and skills shortages, and the need for faster adoption of technologies to support modern construction high on the list of ‘to dos’.

About the author

Michelle Mason

Michelle Mason leads the UK and MEAP Marketing team, with far too many years in B2B marketing to mention. A CONJECT newbie, Michelle is eagerly climbing a steep learning curve.

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