Horváth study: Construction industry does not expect recovery in 2024 either

August 12, 2023

Securing liquidity becomes a central challenge

The rise in interest rates, continuing delivery difficulties and uncertainty caused by the discussion about energy specifications are leading to a continuing slump in the order books of the construction industry. A recent survey by management consultants Horváth among executive boards of large construction companies states that they will close the current year 2023 with an average of only four per cent growth in turnover – that is only half the forecast growth average across all sectors (8.1 per cent). Price increases for materials and personnel continue to be a major or very major problem for the majority of companies (70 percent). Companies are also only slightly more optimistic for 2024.
“Even with a forecast increase in turnover of 5.5 percent next year, there can be no talk of catching up, because adjusted for inflation there is no longer any real growth,” says Ralf Sauter, Partner at Horváth. “In addition, business development in the construction industry depends massively on the investment climate, which is not only influenced by the pure development of interest rates and prices, but also very strongly by psychological factors, such as concerns about falling property prices or the uncertainty caused by the discussion about tightened energy plans. Many builders are currently adopting a wait-and-see attitude, postponing investments or questioning them altogether – which in turn unsettles other market participants. In a way, a self-fulfilling prophecy.”

Securing liquidity as the most important task

Against this background, it is not surprising that securing liquidity is the top management priority for construction companies. Seventy percent of the respondents attribute very high importance to this topic. By way of comparison: if one includes the other industries surveyed in addition to the construction sector, the topic only ranks sixth on the management agenda. The optimisation of cost and profit structures is also rated as correspondingly important in construction (52 percent “very important”).

Hardly any scope for transformation

Declining profitability is keeping the industry from important and urgent transformations. Strategies and innovations in the context of sustainable materials have moved down the to-do list. Digitalisation projects have also lost importance. However, another sustainability aspect is more in focus: circular economy & energy efficiency. With improvements in this area, noticeable savings and thus cost optimisation are finally possible.

“For the moment, it is enough for companies to focus on saving resources. That is understandable in this situation and ultimately also pays into sustainability,” says Horváth expert Ralf Sauter. In the long term, however, according to Sauter, companies cannot avoid tackling sustainability strategically.

The leeway gained from the savings is largely reinvested in solving other challenges. According to the study, every fifth construction company has been the victim of a cyber attack with damaging consequences at least once a year – investments in cyber security from defence to resilience are therefore essential. In addition, after materials, labour costs are now becoming increasingly expensive. Respondents expect almost six percent cost increases for personnel in 2023 – and 82 percent say they feel the labour shortage strongly, even in this meagre order situation. “Higher wages alone are not enough to attract and retain the skilled workers we need. Even in ‘blue collar’ jobs like the skilled trades, demands for more flexible work arrangements are growing – and these restructurings cost capacity,” says Sauter.

About the survey
For the industry survey “Building & Construction Outlook 2023”, a representative sample of board members from companies in the construction industry was interviewed. The sample comprises about 30 selected respondents with whom personal interviews were conducted. These took place as part of the large-scale international Horváth study “CxO Priorities 2023”, for which a total of more than 430 top managers from 19 countries and 13 industries were interviewed. The majority of respondents come from companies with at least one billion euros in annual sales and 1,000 employees.

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