Ever since the financial crisis eased its grip, the construction industry has been plagued with a seemingly incurable post-recession hangover. Staggering in its severity, the sharp decline in construction between 2007 and 2009 resulted in steep losses amounting to over $650bn a year according to Global Construction 2020, a significant report published jointly by Oxford Economics and UK-based consultancy Global Construction Perspectives. To put the dramatic figure in perspective, it exceeds the combined annual construction production of Germany and the UK.
The UK’s construction nosedive
Although the recession left no country unaffected by its forceful and menacing advance, some nations took more of a beating than others. Suffering a great while longer after the rest of the world had been freed from the shackles of recession, the UK seemed incapable of kicking the downward spiral for many years – and is still struggling.
So severe was the decline and its aftermath that business plummeted for the 22nd month running in December 2009, only to recover a fraction at the beginning of 2010 – and then stay more or less even until now, with subtle fluctuations.
In June 2011, the Chartered Institute of Purchasing and Supply revealed that the UK construction industry had slowed down: during that month the construction purchasing managers’ index, which gauges future construction demand, dipped from 53.6 compared to 54 in May. Not causing too much of a stir, the figure roughly matched expectations, and crucially the index remains above the 50 mark, which separates growth from contraction.
In terms of sector specifics, many commercial construction projects ground to a halt around 2007-9, and the residential arena suffered as badly as its commercial counterpart. The UK hasn’t struggled solely in terms of construction though – most industries have been adversely affected, with the retail sector particularly badly tarnished. However the recession seems to be persistently plaguing the construction sector, and the local industry has experienced a dual aspect decline as client numbers have dramatically tumbled along with a sharp fall in new business.
Diamonds in the rough
Something that has to be taken into account when scrutinising the decline of the market, and particularly so the domestic property market, is that the UK is quite unique in that it enjoyed a significant spurt in activity in the years leading up to the recession. During those rosy days, house prices famously rocketed by about 20 percent a year in London, making it impossible for first time buyers to get on to the golden property ladder. Although it was anticipated that property prices couldn’t climb any higher, the boom to bust drama that occurred in 2007 still left the nation in shock and a vast number of properties were repossessed.
Fast forward to the present day, the only major construction project worth mentioning is the major regeneration drive to revive and upgrade the east London suburb Stratford in preparation for next year’s Olympic Games.
Aside from the creation of the Olympic Park itself, the area has been revamped to become a sustainable hub of shopping and business, including the second London retail venture from the Westfield Group. Another London project that hasn’t escaped anyone’s gaze is The Shard – a towering piece of commercial real estate conceived by highly prolific architect Sir Norman Foster.
Aside from these eye-opening projects, however, the future of the UK construction realm looks somewhat bleak, as the government’s stifled budget will no doubt affect the sector adversely for an extended period.
Japan’s stifling bureaucracy
Despite being the fortress of fancy, high tech architecture and interior solutions, Japan’s construction industry suffered a massive blow in 2005, long before the global crisis hit. Serving as the catalyst for the dramatic decline in the market was a new set of building regulations, implemented after the discovery that earthquake safety data for dozens of hotels and apartment blocks had been falsified.
The scandal created a media frenzy and Hidetsugu Aneha, the architect accused of forging the vital safety documents, was jailed for five years. But no amount of investigation or censure – seven other people were arrested for suspected violations of the Architect Act – could prevent the ensuing property crisis.
New regulations meant that properties had to be carefully checked even after gaining approval from ministry-licensed auditors. But while architects accepted the need to reassure prospective buyers that their new homes could withstand the impact of natural disasters such as powerful earthquakes, the lengthy delays in issuing new permits made a big dent in the regional property market. So extreme was the slump that the government was forced to step in and offer emergency aid. As part of the scheme, the economy ministry granted loan guarantees to about 150,000 companies, including surveyors and architects.
The global recession naturally worsened the state of Japanese construction, and the tsunami and earthquake disaster that struck in March 2011 has further accelerated the downward spiral. Another contributing factor is the country’s declining population and restrictions on infrastructure expenditure stemming from government debt. Not surprisingly, recovery won’t happen anytime soon – experts claim that it will pick itself up so sluggishly that by 2020, the country’s construction activity will still be lower than it was in 2003.
US suffering set to ease
One of the first countries to be struck down by the devastating recession was the US, and the crash has continued to have a serious effect on the construction market. Although there have been momentary peaks in spending, the pot hasn’t been properly replenished since before the credit crunch surfaced. Fighting over the small budget available, the competition between American construction companies is decidedly tough.
Indicating the prolonged severity of the slump, 2010 represented the lowest point for the regional sector, and it’s been forecast that the recovery won’t progress until 2013 at the very earliest.
Residential construction suffered the most out of the different segments, and in 2009 housing starts reached their lowest point since records began in 1959. When the industry was in splendid shape, residential construction accounted for 53 percent of total construction. The figure dropped to just 31 percent in 2010, with equally dramatic losses in both single-family and multi-family properties.
Doomed as the US construction market may seem, the country is still considered one of the largest procurers of construction services in the world, and the government remains a strong contender in the line-up for the most promising candidates of new projects, be they building or civil undertakings. The housing sector, meanwhile, is predicted to advance with gusto in the next few years to compensate for the dramatic losses since 2007.
Change is in the air
On the whole, the global construction sector has been making a decidedly sluggish recovery in the wake of the financial crisis. However the sector picked up marginally last year, mostly owing to the rise and urbanisation of developing countries, but also thanks to the new industry of green technologies.
If a new crisis can be kept at bay, the future looks bright. Construction funds have started to flood in and are set to increase. According to the Global Construction 2020 report, growth in global construction will outpace world GDP over the next 10 years, growing from $7.2trn to $12trn – a compound annual growth rate of 5.2 percent.
This powerful growth is likely to be fuelled by the growth of the Asian powerhouses, as well as the cyclical rebound in the US. Collectively, it’s estimated that these countries will generate over half of the $4.8trn growth. Thanks to these markets, construction has never seen such rapid growth above GDP. The report claims that a total of $97.7trn will be spent on construction globally over the next 10 years.
China and India’s rising population, rapid urbanisation and strong economic growth are key drivers for construction. Significantly, China overtook the US in 2010 to become the world’s largest construction market, boosted by stimulus spending. The size of the country’s construction market will more than double over the decade, reaching $2.5trn by 2020, an amount that equates to as much as 21 percent of world construction. India, meanwhile, is predicted to overtake Japan to become the world’s third largest construction market by 2018. Boosting the positive outlook further, the US will register a sharp cyclical rebound in construction with short term double digit growth in both residential and non residential building sectors.
It’s plain to see that construction will become one of the most important global growth industries of the next decade, and as well as these three key nations, other countries set to flex their construction muscles include Indonesia, Brazil, Canada, Australia and Russia.
The rise of the Aerotropolis
Town planning is undergoing a renaissance. In the new era of city construction, airports are set to form an integral part of urban life – if not serving as its very heart. The movement in the making is so major that a new term has been coined for hubs with airports at their centre: enter the Aerotropolis.
China is at the forefront of this new trend in urban development. About 100 new airports are set to spring up in the country by 2020, and each one will be in close proximity to cities, making life more practical for its residents. It’s estimated that 1.5 billion Chinese people will live within a mere 90 minutes of an airport. A new book Aerotropolis – The Way We’ll Live Next, charts China’s new airport-centric approach, with the premise that the cities of tomorrow will be built around airports; as opposed to the other way around.
So why focus so intently on the airport and its convenient, centrally located position? In today’s marketplace, where air travel is becoming ever more crucial, the importance of accessibility and speed can’t be underestimated. It’s not only travel-happy businessmen and holiday makers that have been accounted for; trade is also an important factor, as the value of air cargo is dramatically increasing.
Existing Aerotropolises upon which town planners can model new variants include Dubai, Abu Dhabi and Doha, and South Korea’s manmade island New Songdo City.
As a result of globalisation, the construction sector is becoming ever more international. Leading architects, designers and talents in the field of new technology now operate globally, with offices in many different parts of the world. China is a definite draw for many players within the creative industries, as it allows much room for innovation; and as such the country is set to become something of a hotbed for new architectural ideas and experiments.