As the building and construction industry sees continued recovery and demand, Tom Diplock looks ahead to a patchy 2022 that nonetheless bears much promise. With sustainability moving to centre stage and the pressure on to create cities and infrastructure to suit the post-pandemic world, discover the key trends that will continue to shape this important sector.

Read a transcript of the video below:

My name is Tom Diplock. I'm a Partner in L.E.K.'s industrials practice based here in the London office. I head up our building and construction activity here in the UK. 2021 has certainly been an extraordinary year for the building and construction sector. Off the back of the disruption of COVID, we've seen a pretty rapid bounce back in demand across almost all parts of market, but in the context of fairly significant constraints and challenges around material shortages, labor shortages, and rampant price inflation that has made supplying that demand and managing margins incredibly difficult.

Our outlook for 2022 for the building and construction sector is to see a continuation of a number of the key themes we've seen over the past 12 to 18 months. Continued recovery and demand across the majority of sectors of the market, ongoing resolution of supply chain challenges around material availability and labor and material pricing, and also continued acceleration of both digital adoption and the importance of sustainability for the sector. The recovery and ongoing growth of the sector will continue to be slightly uneven. But overall, we see a positive trajectory.

On the residential side, the fundamentals of the market remain strong, underpinned by a significant housing shortage and ongoing house price increases. They're already back at 2019 levels of housing starts and see that continuing to grow over the coming years. On the repair, maintenance, and improvement side of the market, the shift in people's decisions on where to spend their money during COVID and increasing focus on the home may begin to unwind slightly as travel and leisure options reopen, but significant levels of pent up consumer savings and deferred demand due to reduced consumer confidence since the Brexit vote in late 2016 will lead to a significant backlog of demand that still needs to be fulfilled.

Infrastructure continues to be a bright spot for the construction sector. The government has reconfirmed its commitment to spending across both major projects and enhancing infrastructure, whether that's the continued spend on HS2, the expansion of nuclear power generation capacity, or investment in the roads network. All of that combined with an aging infrastructure that continues to require maintenance leads to a positive outlook across the infrastructure market as a whole. One area of greater unevenness is really around commercial construction, where offices and retail are still challenged in terms of understanding the future of work and home and the advent and continued growth of online shopping putting greater pressure on the high street.

However, there are bright spots, whether that's growth in logistics and warehousing to fulfill e-commerce demand, whether it's continued investment in data centers, in entertainment, all of those areas will continue to drive growth in certain pockets. Equally, the requirement to reconfigure high streets as the evolving needs of consumers continue to play through, whether that's the 15-minute city or other reuse and re-imagining of space will all drive demand for construction activity over the short to medium term.

We also expect a continuation of two of the key themes we've seen over the course of this year as we look forward into 2022. Ongoing adoption of digital and technology will only accelerate. The other key topic is sustainability, where increasing pressure from all stakeholders will require building and construction firms to think hard about not just the energy efficiency of their own products, but also their business processes, their manufacturing, and how they can support the energy efficiency of the buildings that those products are served into.

For all of the challenges and opportunities ahead for our clients, we are here to try and help them navigate through those choppy waters and plot a path to profitable growth.

Related Insights