Horváth Study: Construction industry does not expect recovery in 2024

  • Securing liquidity is becoming a core challenge
  • Hardly any scope for digitalization and sustainable innovations
  • ​​​​​​​Shortage of skilled workers is forcing companies to rethink their approach

    ​​​​​​​The rise in interest rates, ongoing delivery problems and uncertainty caused by the discussion about energy specifications are leading to a continuing slump in the order books of the construction industry. In a recent survey of board members of major construction companies by the management consultancy Horváth, the respondents expected to end the current year 2023 with on average only four percent sales growth – only half the average forecast growth across all sectors (8.1 percent). Price increases for materials and personnel continue to be a serious or very serious problem for the majority of companies (70 percent). Companies are also only slightly more optimistic for 2024. "Even with a forecast sales increase of 5.5 percent next year, there can be no talk of catching up, because adjusted for inflation, there is no real growth left," says Ralf Sauter, a partner at Horváth. "In addition, business development in the construction industry is massively dependent 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 real estate prices or uncertainty due to discussions about stricter energy plans. Many developers are currently adopting a wait-and-see approach, postponing investments or calling them into question altogether – which in turn is unsettling other market players. In a sense, a self-fulfilling prophecy."

  • Securing liquidity is 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 those surveyed gave this issue a very high priority. By way of comparison, if the other surveyed industries are included in addition to the construction sector, this topic only ranks sixth on the management agenda. The optimization of cost and profit structures is also rated as correspondingly important in the construction sector (52 percent "very important").

    Hardly any scope for transformations

    Declining profitability is holding the industry back from important and urgent transformations. Thus, strategies and innovations in the context of sustainable materials have moved down the to-do list. Digitalization 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 optimizations are ultimately 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's Ralf Sauter. In the long term, however, according to Sauter, companies cannot avoid tackling sustainability strategically as well.

    The extra scope gained through these savings is then largely reinvested to solve other challenges. According to the study, one in five construction companies has been the victim of a cyberattack with damaging consequences at least once per year – investments in cybersecurity, from defense to resilience, are therefore essential. In addition, after materials, labor costs are now becoming increasingly expensive. The respondents anticipate almost six percent cost increases for personnel in 2023 – and 82 percent say they are feeling the effects of the labor shortage acutely even in this tepid order environment. "Higher wages alone are not enough to attract and retain the skilled workers we need. Even in 'blue collar' jobs like the skilled trades, the demands for more flexible work arrangements are growing – and these restructurings cost capacity," says Sauter.

    About the study

    A representative sample of board members from companies in the construction industry was surveyed for the "Building & Construction Outlook 2023" industry survey. The sample comprises around 30 selected respondents with whom personal interviews were conducted. These took place as part of Horváth's large-scale international "CxO Priorities 2023" study, for which a total of over 430 top managers from 19 countries and 13 industries were surveyed. The majority of respondents are employed at companies with annual sales of at least one billion euros and 1,000 employees.