Future forward

5 trends to watch for in 2022 • By Will Pender

For most people working in the construction industry, 2021 was a blur. As pandemic-postponed projects kicked off, ongoing supply chain disruptions and price increases for materials added pressure to an industry already struggling with a tight labor market. Many of the challenges the industry faced in 2021 will continue into 2022, and some new challenges are bubbling to the surface.

Below are five trends to watch in the coming year.

Trend No. 1: Smoother Supply Chains

Over the past 18-plus months or so, supply chain disruptions have created a lot of headaches for the construction industry. According to global real estate firm Cushman & Wakefield, capacity utilization plummeted in 2020. Mills, processing plants and manufacturing operations slowed or stopped due to health concerns, supply chain freezes, and lack of demand. Due to the lack of production, supply shortages and lengthy delivery times plagued GCs and projects across the country. Everyone in the industry had to fight for materials, pay more for them, and adjust their budgets. But the supply chain should be in much better shape by mid-summer. Everyone is now focused on fixing the supply chain, and US ports are working 24/7 to unload container ships and route them to their final destination. As the supply chain settles, bottlenecks will improve and pricing for construction materials will level out. And construction schedules, particularly the schedule for buying materials, will slowly start to return to pre-pandemic levels. In the future, supply chain disruptions will likely be mitigated by nearshoring efforts—the production of materials and products made in the USA.

Trend No. 2: Inflationary Environment

The buzzword right now is inflation. From milk and meat to cabinets and faucets, prices are going up. The construction industry has been able to absorb the inflation-related increases because interest rates are so low, and money is fairly cheap. But if interest rates tick up and inflation continues to increase, money will no longer be as cheap, and construction activity will slow significantly. In the 12 months through September, the core personal consumption expenditure (PCE) price index—the Fed’s preferred inflation measure—rose 3.6% for a fourth straight month, remaining at the highest level since May 1991, according to the Commerce Department. The Federal Reserve said in early November that the central bank will use tools to “preserve price stability” if the rate of inflation or longer-term inflation expectations move materially and persistently beyond levels consistent with the central bank’s goal. Moreover, a Bloomberg survey released in early November showed that economists are closely divided on whether US interest rates will begin increasing in 2022 or early 2023. A slim majority estimates the latter timing. More general contractors will encourage their customers to add a 5% to 7% inflation contingency fund to project budgets to accommodate inflationary increases in materials or labor. Likewise, GCs will need to monitor material prices in real time to adjust the budget as necessary and make immediate purchasing decisions.

Trend No. 3: Continued Labor Shortage

Like all industries, construction is suffering from a labor shortage. It is not new— it is something that has been going on for years. From 2015 to 2019, the number of open and unfilled jobs in construction across the country doubled from 150,000 to 300,000 openings, according to JLL’s construction outlook for the second half of 2021. Eight out of 10 construction firms have ranked labor availability and the cost of labor as a top concern for the past several years. The pandemic exacerbated the industry’s labor shortage. About 7.45 million Americans work in the construction industry, according to the Bureau of Labor Statistics. In 2021, the lack of available labor led to more project delays than a lack of materials. Construction-related businesses needed to hire 430,000 workers in 2021 to keep pace with demand, according to Associated Builders and Contractors. They will need to hire an additional one million over the next two years. Unfortunately, the situation likely will not improve for several years. The ongoing labor shortage is driving up construction wages. JLL forecasts wages will increase 3% to 6% in 2022. Forward-thinking GCs are working hard to cultivate a younger generation of talent. They’ve implemented training and mentoring programs to introduce young adults to the construction industry and the career opportunities it offers. GCs also are looking to prefabricated/modular construction to help alleviate labor shortages.

Trend No. 4: Increased Popularity of Prefabricated/Modular Construction

Prefabrication and modularization have been buzzwords for the past 10 to 15 years. Now more than ever before, people are serious about using this construction method for new projects. Given the labor and materials shortages, plus a push toward sustainability, building in a controlled environment with fewer people makes sense. With modular construction, less work is conducted on site. This will ease some of the difficulties related to labor and material shortages and create operational efficiencies that reduce time, cost, and waste. The modular construction market is expected to witness significant growth over the next several years. In 2019, modular construction was a $129 billion industry, and a report from Global Market Insights projected it would expand at a compounded annual rate of 7.1% from 2020 to 2026. Previously, design firms and developers avoided modular construction because it seemed to stymie creativity, constraining architects and interior designers and forcing them to do their work within the confines of a box. Fortunately, the industry has figured out ways to create beautiful buildings with modular construction, nonetheless.

Trend No. 5: Emphasis on Sustainability

While it is everyone’s responsibility to take care of the environment, construction-related businesses must be environmental stewards. GCs, in particular, are uniquely positioned to make a difference by being sustainability advocates. They can share the message about sustainability with their clients and guide them toward materials and processes that are friendlier to the environment. For example, AP’s five-year goal is to emerge as an industry leader in environmental stewardship. The firm is evaluating its environmental impact through a carbon footprint study and has created a dedicated task force and initiatives to be more environmentally friendly. As more organizations build and broaden their Environmental, Social and Governance (ESG) initiatives, the construction industry will need to find ways to implement and execute these initiatives. Firms that don’t demonstrate their commitment to sustainability will lose business.

Thinking about the future

The start of a new year always generates excitement, and 2022 is no different. In fact, some would argue that people are even more excited about the new year because they are hopeful that the difficulties of the past two years are coming to an end. Even if some of the challenges persist, the construction industry will find a way to overcome them. Construction professionals have always been problem-solvers, and that is one thing that will not change. CCR

Will Pender is president of the Gulf States region for Adolfson & Peterson Construction (AP). Based in Dallas, Pender has more than 15 years of construction experience. For more information, visit www.a-p.com.

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