Our 2022 outlook for the construction market
Building on firm ground
If there is one thing the construction industry loathes, it’s uncertainty. Yet that’s exactly what contractors and project owners alike have dealt with for nearly two years.
As the COVID-19 pandemic continues to snarl schedules, supply chains, labor availability, procurement and delivery strategies, and more, contractors and other industry stakeholders have had to push forward with an incomplete map of what lies ahead.
It hasn’t all been negative. Many sectors are on firm ground. The residential market did well in 2021, particularly in the multifamily housing sector. The warehouse and distribution sector also saw growth this past year, thanks to continued demand for e-commerce. Onshoring efforts continue to drive activity in the manufacturing sector, and the healthcare market came out on top as well. The infrastructure sector is on the verge of a rapid upswing with the passage of the $1 trillion infrastructure bill.
On the opposite end of the equation are retail, hospitality and commercial office space.
Retail, of course, took a hit with the accelerated adoption of e-commerce during the pandemic. While the hospitality sector is showing signs of recovery, growth is sluggish as businesses struggle with a workforce shortage. And in the office sector, the success of remote-work strategies will continue to shrink the market for at least the next 12 to 18 months. The education sector was cold throughout 2021, but many on-hold projects could thaw out in the coming year. However, activity in this sector will depend on revenues and funding, creating yet more unknowns for industry stakeholders.
One thing that is certain: The industry will see a continuation of many trends that emerged in 2021. However, there is reason for optimism. The coming year holds much promise for contractors that are adaptable, flexible and technologically savvy. Here’s what to watch for in the new year:
After a steady push into the urban core, the tide has turned. Remote-work arrangements are enabling people to migrate to areas where their dollars go farther, such as outer-ring suburbs and low-tax states. The residential construction market is absorbing much of this growth right now. Eventually, though, it will drive gains across other sectors. Contractors that want to come out ahead need to watch migration patterns and start building market strategies now for high-growth areas.
Supply chain headaches
Material shortages complicated schedules and budgets throughout 2021. Contractors can expect more of the same for at least the next 12 months. Novel work-arounds are emerging in response to the volatility, such as transitioning from just-in-time deliveries to just-in-case purchasing. Project owners have shown they are willing to pay higher up-front costs for goods and storage if it will keep their budgets in check and projects on track.
The construction industry’s labor shortage is not new, but the pandemic has made it more acute. Labor is now a limited resource, and attracting and retaining employees has become critical. In addition to offering higher wages, more companies are investing in retention strategies, including long-term or deferred payment plans.
Vaccination requirements will put added pressure on contractors’ staffing plans. The Biden administration’s vaccination mandate is certainly one issue driving this. However, as more organizations require that anyone working on their premises be vaccinated, contractors may need to account for vaccination status when staffing projects. In addition, health insurance rates may rise for people who choose not to be vaccinated. Contractors may need to make tough decisions until the pandemic fully recedes.
The digital advantage
Digital tools and platforms have already proven their ability to shorten schedules, improve accuracy and increase efficiency. Contractors will increasingly discover that they provide an advantage in attracting younger, tech-savvy workers, too. One note of caution: With the expanded use of digital technology comes the elevated risk of cybercrime. To protect their operations, contractors will need to sharpen their digital security strategies.
While the infrastructure bill has been closely followed by industry stakeholders, other regulatory changes and legislation bear watching in 2022. Among them are the American Rescue Plan (ARP) Act of 2021, which will provide financial assistance to certain underfunded multiemployer pension plans. In addition, new lease accounting standards spelled out under Accounting Standards Codification (ASC) 842 will affect how some nonpublic companies account for long-term leases. Contractors that haven’t sought guidance from their accounting professionals on this matter will want to do so soon.
A rise in auto and umbrella insurance costs are prompting many contractors to rethink traditional perks. For example, we are seeing more contractors offer a monthly stipend in place of a company-owned vehicle to curb rising premiums. It’s one way that the uncertainties and higher costs of 2021 are reshaping the industry for years to come.