The Global Construction Newsletter for Q3 2023:

Executive Summary:

The Global Construction sector is positioned for a recovery from the last 2 to 3 lackluster years. The Global Construction Industry is resilient and forecast to reach $11 trillion by the year’s end in 2023 and to hit $13 trillion by 2026.

The countries that are seeing increased/enhanced construction activity include Saudi Arabia, China (getting back on track after the COVID-19 shutdowns), India, Vietnam, and some of the smaller SE Asian nations.

Artificial Intelligence (AI) continues to be the new hot topic that construction professionals are talking about. How will AI impact current and future Engineering, Procurement, and Construction (EPC) practices? How it will be implemented/utilized in the construction industry in the near and long term future? Many construction professionals have concerns that in 1 to 5 years it may lead to significant redundancies/downsizing and the decreased need for Project/Construction Managers, Engineers, Planners, Estimators, Quantity Surveyors, and the like. Time will tell.

Look for additional Oil and Gas capital projects project in the 2nd half of 2023 and beyond. The forecast is that the world will require between 60 and 80 million barrels of oil a day, increasing to 100 million barrels a day by 2027. However, are these future growth projections valid, when we consider EV utilization and vehicle growth projections?

For some good news, it looks like the US will not experience an economic recession as we transition into the 2nd half of 2023 and 2024.

The 1st half of 2023 has been a difficult period for most countries’ construction sectors. The 2nd half of 2023 will see the first step in a new growth cycle, especially in the Industrial (EV-related projects, lithium extraction and refining, oil and gas facilities, call centers, microchip facilities, and logistic centers) sector, together with increased infrastructure and commercial construction projects, these new capital projects will aid the construction industry in recovering from its 2 to 3-year decline. The good news for the US construction sector continues, we have seen numerous announcements of plans to build Electrical Vehicle Manufacturing/Battery Facilities, Semi-Conductor/Computer Chip Facilities, Call Centers, Logistical Centers, and Fulfillment type facilities in many regions across the USA.

An issue may arise with lithium suppliers/manufacturers advising global lithium supplies may not be sufficient for the huge demand for future EV vehicles and battery requirements.  Lithium battery manufacturers are raising concerns related to future shortages of rare metals, price increases, and their ability to supply sufficient EV battery components to satisfy the need to move away from carbon-related oil/gas energy. It appears that some major oil/gas companies are jumping on the bandwagon and entering the lithium production market. Do these companies see the writing on the wall for the demise of oil product usage perhaps in the next decade or two?

Construction-related E/A firms and Construction related companies appear to have sufficient future work and bidding opportunities in front of them for the 2nd half of 2023 and beyond is the feedback we are hearing. However, 6 months from now it might be a different story.

The recent failures of 2 mid-sized banks in the US and a major European bank  have raised questions and possible risks for many construction-related organizations. This could cause some capital projects to be delayed or canceled.

Unfortunately, close to 100,000 employees in US-based tech/IT companies have been let go in huge job cuts so far in 2023. Expect this trend to continue in 2024. The future growth of AI applications is a problem for these IT-focused employees.

The US labor market is very strong at this time with a 3.5% unemployment rate resulting in 6 million individuals without work.  This extremely low percentage rate has not been seen for more than 40 years.

A new nuclear power plant located in Georgia, USA will be operational in May. This is a major milestone for the US nuclear industry that may lead the charge for more nuclear facilities to be constructed in the coming years. The US currently operates 90+ nuclear reactors that generate as much as 20% of the electrical needs of the country. Nuclear power assists in reducing global warming by providing reliable clean/carbon-free electricity. However, escalating interest/lending rates and rising construction material costs, together with a scarcity of skilled workers and sub-contractors may be a major challenge and could slow down construction schedules on these new significant capital projects.

The life science construction sector (Pharmaceuticals/Bio/Medical Devices) continues to be reasonably strong (perhaps somewhat slower than a year or two ago, back when COVID-19 was rampant), with a number of major capital expansions ongoing or in the pipeline.

US construction labor challenges continue. There is a shortage of skilled construction workers such as electricians, welders, pipe-fitters, and millwrights. Baby boomers (individuals reaching 55 years of age) are retiring at record numbers. Recent college graduates/young workers are not entering the construction industry in the numbers needed to sustain a growing construction sector. These younger workers are attracted to other industries such as IT, business, etc. These and other industry sectors look more attractive and less demanding to these individuals.

The Canadian infrastructure (mining as well as oil and gas) construction sectors are experiencing a pick-up as we move into the 2nd half of 2023.  Canada’s inflation rate is high, at more than 5%. Look for this rate to start to moderate in the next 6 months. A number of electric vehicle facilities, EV lithium battery, and auto assembly facilities have recently been announced, which should provide an active period for the Canadian industrial construction sector for the next eighteen months.

In Mexico, Tesla recently announced it will build a major electric vehicle factory on a 4,000-acre facility close to Monterrey. The construction cost is forecast to be in the $5 billion range. This Mexican facility is projected to produce 500,000 EV vehicles in the next 3 years, with perhaps 250,000 of these ending up in the US Many parts suppliers and vendors will also build facilities close to this new Tesla factory. Mexico’s inflation rate is high at more than 7.1%. Look for this rate to start to moderate in the next 6 months.

Inflation is remaining elevated in just about all countries however, it is starting to moderate in most countries.

For the best part of 24 months, the global construction industry has faced the following challenges:

•   The ongoing Russia – Ukraine conflict and the recent coup attempt by Wagner Group is a continuing problem.
•   In Asia, there are a number of possible flashpoints, including the South China Sea, China, and Taiwan. North Korea continues to fire off missiles and the India vs. China border standoff continues.
•   There is a possibility of a US/European banking and economic crisis in the next 3 – 6 months.
•   The shortage of skilled construction workers and sub-contractors.

The vast majority of construction bulk materials, such as timber/plywood and OSB, steel products (rebar and structural steel), copper products, roofing, cement, concrete, and plumbing and electrical components have started to decline from their high prices resulting from the global pandemic. Some of these bulk construction materials have declined by as much as 15% to 20%. Unfortunately, most construction bulk materials and, to some extent, construction-related equipment such as HVAC components, pumps, and electrical equipment are still 5% to 15% more expensive than 12 months ago.

Look for transportation/ocean and domestic freight costs to stabilize and moderate in the next 6 months.

2nd half of 2023 Construction Outlook for Major Countries:

3rd Q 2023 Prices at a Glance:

•   Forecast Cost of a barrel of Crude Oil $75 – $85
•   Forecast of Euro / US $ Exchange Rate 0.93 – 0.97
•   Forecast of UK Pound / US $ Exchange Rate $1.18 – $1.28
•   Forecast of Copper per pound $3.85 – $4.05
•   Forecast of Gold per Ounce $1,950 – $2,000
•   US Construction Material Inflation (Basket of 10 construction materials) 3.3% – 3.9% – Average 3.7%

Compass International is the considered by many to the global leader in providing construction cost data. We partner with many of our clients to train there staff on Conceptual & Detailed Estimating methods, Validate Estimates and to turnaround problem CAPEX projects.

Eliminate the risk of cost overruns with Compass International’s researched and current US & International construction cost data.

Compass International’s team of Estimators, Cost Engineers and Planners spend thousands of hours of construction costs research to develop our (9) construction cost databases. In addition, we have a network of Construction Professionals / Consultants / Estimator located in more than 25 countries providing us with real time cost data. All of our data is supplemented with feedback from Project Control Professionals, Estimators, Q.S.’s, Architects, Engineers and Construction Managers around the world.

This comprehensive research supports us in validating our construction cost data library. Our updated construction cost data will assist you in your estimating / budgeting efforts, removing any concern of future construction cost overruns.