At the same time and with increasing urbanisation, infrastructure and smart city developments, a stronger focus will be put on making infrastructure and transport more efficient and sustainable.

There are a number of large forces at work which form the basis for the framework in which the construction sector operates and develops.

  • Urbanisation is one of the key developments which can be observed in industrialised and emerging economies alike. The pandemic briefly shifted public focus to remote working and an increased demand for more room and quality of accommodation for certain, mostly white-collar professions, but this does in no way slow down the global trend.
  • Secondly, globalisation is increasing. Again, the vulnerability of global supply chains is a recent and widely shared experience. It remains to be seen in which sec- tors, if at all, a trend back to local sourcing will pick up.
  • Demographic shifts, climate change and rapid technologi- cal advancements complement the macro megatrends. On the demand side, they cause shifts in consumer priorities with sustain- ability becoming an increasingly relevant piece of the puzzle either as constraint, when it comes to achieving those goals, or as pre-requisite in sourcing and making investment decisions.

Construction is an industry which in the past has often been called out for showing slow growth in productivity in comparison to stationary industries as well as other sectors. And while there is a vivid discussion of whether those measures of productivity adequately reflect the output rendered or whether they should be amended, it is uncontested that foreseeable technological change has the potential to boost the sector into something that could aptly be referred to as Industry 4.0.
Environmental aspects and technological progress will be the main pivotal elements coining and shaping the industry in the coming decades.

Requirements for durability, safety and longevity will increase. New challenges in this regard will have to be overcome in the light of climate change and more unpredictable exposures than in the past. Climate adaption projects, for example to better prevent flooding, are expected to be among the largest and most expensive infrastructure projects in the coming decades, as policymakers set out to protect and sustain population centres against new – or resurrected – exposures. Jakarta, most commonly cited as one of the fastest sinking cities, or the recent floods in Turkey, Belgium and Germany are just hints of what may become necessary on a wider scale. There is, yet again, a divide between developed and emerging markets, with the latter being most exposed and lacking financing.

Influencer climate change

At the same time and with increasing urbanisation, infrastructure and smart city developments, a stronger focus will be put on making infrastructure and transport more efficient and sustainable. City planners are shifting away from privately owned fuel-powered cars to pursuing new concepts.

Electric vehicles or micro-mobility options like dockless bikes and scooters are already a thing of the present. They will, however, require continued adaptation of existing infrastructure with regards to separate lanes, parking, and storage facilities instead of parking for vehicles with combustion engines. Shared autonomous vehicles, airborne options like flying taxis and electrical vertical take-off and landing crafts (eVTOLs) may sound utopian, but they are feasible, given recent advances in battery technology. Construction firms will continue to specialise in mass transit, rail and bus projects. As pioneers of adopting alternative mobility, they will benefit from the development.
Our natural water resources are globally under pressure as well. Increased investments will therefore flow into water resource management and water desalination. Some of the largest cities worldwide are severely water stressed. This raises the question of whether the price of water will also come under pressure. After all, while being a redundant resource in a few areas of the world, the scarcity of water as a vital element prevails on every continent.
Green construction, based on a sustainable foundation, can hence be expected to be the first order of business. This is a topic with geopolitical reach and indeed multi-facetted. The topic, however, seems to have reached a serious turning point. In public debates an increasing number of voices warn that we have already passed a point of no return, and some effects caused by mankind’s actions are irreversible. An almost equally large number of people negates or doubts the very fact. Regulators and policymakers are expected to increasingly address these issues, as the recent regulation with regards to socially responsible ESG investment criteria shows. A case in point
is the practice of climate-washing and greenwashing used by some to optimise a company’s or a product’s profile. Efforts have been made to prevent this from becoming a mere compliance-driven ticking-the-box exercise and turn it into an effective instrument.

Technology in the driver seat

Technological advances are considered an integral part at the design stage, changing the risk and benefits profile of assets during the construction and operation phase. The implementation of new technologies is bound to have an effect through labour restructuring, for instance, and an increased dependency on data and internet opens
a wider array of questions when it comes to cyber-attacks. With infrastructure often being of strategical relevance to countries, the further proliferation of connected infrastructure assets goes hand in hand with an increased exposure.
The trends in technology which are expected to drive the industry are modular construction and new materials, including increased energy efficiency, prefabrication, and Internet of Things (IoT). IoT is a seemingly innocuous acronym. Its relevance as a disruptive tech- nology can hardly be overstated. Connected construction sites can improve their productivity level and use IoT solutions for predictive maintenance of plants, machinery and buildings.
There is an array of companies, spanning from global players who increasingly position themselves as tech companies operating in the field of construction down to the regular (sub)contractor and craftsman. Still, the change will affect all levels over time. The main barriers, according to a recent GlobalData survey on ESG investments, are construction cost and lack of return on investment.

While the former is tied to the readiness of market demand to pay a premium for achieving these deliverables, the second comprises the question of whether investments in new technologies and material can bolster the ROI. Considering the risks incurred in the construction industry, this is low compared to other industry sectors. Modularisation and prefabrication designs increase efficiency as well as safety. Investments made into new materials, such as high-strength concrete, geosynthetics, geotextiles, fire-resistant timbers and self-healing materials may need a longer period until they pay-off but they are an ideal means to strategically position companies for meeting the changing requirements driven by the macro environment.

Risk management and insurance follow suit

The consequences for the insurance industry are twofold.

For one, existing insurance solutions must be adapted. Increased losses caused by Nat Cat or damage due to faulty materials or tougher workmanship challenges will be reflected in engineering, professional indemnity and general liability ratings.

On the other hand, new products can establish themselves, like parametric covers which pay as soon as a certain measurable trigger is exceeded. Cyber insurance, an exotic term just a few years ago, is widely known today and is sometimes catchingly referred to as the “fire insurance of the 21st century”. It has become a required basic cover for companies competing in today’s digital environment.

Richard Krammer

Group Practice Leader Construction & Real Estate

T +43 664 810 29 63

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