From bust to boom

The construction sector experienced freefall in 2007 with losses amounting to $450bn. Recovery has been sluggish, but a construction boom is set to gather pace, with China, India and the US leading the way

The construction sector experienced freefall in 2007 with losses amounting to $450bn. Recovery has been sluggish, but a construction boom is set to gather pace, with China, India and the US leading the way

Ever since the financial crisis eased its grip, the construction industry has been plagued with a seemingly unrecoverable post∞recession hangover. Staggering in its severity, the decline in construction between 2007 and 2009 resulted in losses amounting to over €448bn a year, according to Global Construction 2020 – a significant report published jointly by Oxford Economics and UK∞based consultancy Global Construction Perspectives. To put the figure in perspective, it exceeds the combined annual construction production of Germany and the UK.

Britain’s constructive nosedive 
Although the recession left no country unaffected by its forceful and menacing advance, some nations took more of a beating than others. Suffering a great deal longer after the recession had eased in the rest of the world, the UK seemed incapable of kicking the downward spiral for many years and is still struggling somewhat. So severe was the decline and its aftermath that business plummeted in December 2009 for the 22nd month only to recover a fraction at the beginning of 2010, and then stay more or less even until now with subtle fluctuations.

In June 2011, the Chartered Institute of Purchasing and Supply (CIPS) revealed that the UK construction industry had slowed down, and during that month the PMI (the construction purchasing managers’ index – a form of extortionate measurement monitoring business activity) dipped from 53.6 compared to 54 in May. Not causing too much of a stir, the figure roughly matched expectations, and most crucially, the index remains above the all-important 50 mark, the level that separates growth from contraction.

In terms of sector specifics, many commercial construction projects were ground to a halt during the 2007-2009 period, and the residential arena suffered as badly as its commercial counterpart. The UK hasn’t struggled solely in terms of construction though most industries have been adversely affected, the retail sector to mention one particularly bruised segment. The construction sector has been particularly plagued by the recession, and the local industry has experienced a dual aspect decline as client numbers have dramatically tumbled along with a sharp fall in new business.

Something that has to be taken into account when scrutinising the decline of the market, and particularly the domestic property market, is that the country is quite unique in that it enjoyed a significant spurt in activity in the years leading up to the recession.

During those better days, house prices famously rocketed around 20 percent a year in London, making it impossible for first time buyers to get on to the property ladder. Expected as it was that property prices couldn’t climb any higher, the boom to bust drama that occurred in 2007 still left the nation in shock and a vast number of properties were repossessed.

Fast forward to the present day, the only construction project worth mentioning is the major regeneration drive to revive and upgrade the east London suburb that is Stratford in preparation for next year’s Olympic Games. Aside from the creation of the Olympic Park itself, the area has been revamped to become a sustainable hub of shopping and business. To prove it, the shopping giant, Westfield’s is soon to open its second retail venture in Stratford City. Another London project that hasn’t escaped anyone’s gaze due to its sheer height is The Shard – a towering piece of commercial real estate conceived by the highly regarded architect, Sir Norman Foster.

Aside from the conception of these projects, the future of the UK construction industry looks somewhat bleak, as the government’s stifled budget will no doubt continue to affect the sector adversely for an extended period of time.

Eastern bureaucracy

Despite being renowned for its interior solutions, Japan’s construction industry suffered a massive blow even before the global crisis hit in 2005. Serving as the catalyst for the dramatic decline in the market was a new set of building regulations implemented following the falsification of earthquake safety data concerning dozens of hotels and apartment blocks. A blunder committed by the architect, Hidetsugu Aneha, the scandal created a media frenzy and the architect was made to publicly apologise. But no admissions of guilt could rectify the property crisis that » was set about as a result of this ill-advised move. The new regulations meant that properties had to be carefully checked even after gaining approval from ministry-licensed auditors to sell.

While architects accepted the need to reassure prospective buyers that their new homes could stand the impact of natural disaster such as earthquakes, they recognised the fact that the lengthy delays in issuing new permits was ultimately to blame for the dent in the regional property market. So extreme was the slump that ensued that the government was forced to step in and offer emergency aid. As part of the scheme, the economy ministry granted loan guarantees to about 150,000 companies, including surveyors and architects.

The global recession naturally worsened the state of Japanese construction, and the joint tsunami and earthquake disaster that struck in March 2011 accelerated the downward spiral further. Another contributing factor is the country’s declining population and restrictions on infrastructure expenditure stemming from government debt. Not surprisingly, recovery won’t happen anytime soon with experts claiming that it will pick itself up by 2020, yet the country’s construction activity will still be lower than it was back in 2003.

Easing American pain
One of the first countries to be struck down by the devastating recession was the US, and the crash has continued to have a serious effect on the construction market. Although there have been momentary peaks in spending, the pot hasn’t been properly replenished since before the credit crunch surfaced. Fighting over the small budget available, the competition between American construction companies is decidedly tough. Indicating the prolonged severity of the slump, 2010 represented the lowest point for the regional sector, and it’s been forecasted that the recovery progress won’t take place until 2013 at the very earliest.

Suffering the most out of the different segments, the residential construction area saw housing starts reaching their lowest point ever in 2009 since records began in 1959. When the industry was in more robust shape, residential construction accounted for 53 percent of total construction while the figure sat at 31 percent in 2010, with equally dramatic losses seen in both single-family and multi-family properties. In terms of states and their respective hardships, California was the worst hit in the country. The state saw a significant slump in construction with high unemployment figures to match.

Doomed as the US construction market may seem, the country is still considered one of the largest procurer of construction services in the world, and the government remains a strong contender in the line-up for the most promising candidates of new projects, be they building or civil undertakings. The housing sector, meanwhile, is predicted to advance with new impetus over the next few years to compensate for the dramatic losses that have pilled up since 2007.

Booming back
On the whole, the global construction sector has been making a decidedly sluggish recovery in the wake of the financial crisis. Indeed, the global slump that the world of construction suffered in 2007 was unprecedented. Improving slightly, the sector picked up marginally last year, mainly owing to the rise and urbanisation of developing countries but also due to the fact that green technologies have created a new industry in itself.

If a new crisis can be kept at bay, the future looks bright. Construction funds have started to flood in and are set to increase further. According to The Global Construction 2020 report, growth in global construction will outpace world GDP over the next 10 years, seeing global construction grow by 70 percent from the current figure of $7.2 trn, a sizable increase that will amount to $12trn by 2020. The reason behind the powerful growth is twofold and is fuelled both from the growth of the Asian market and the cyclical rebound in the US. Collectively, it’s estimated that these countries will generate over half of the $4.8trn growth. Thanks to these markets, construction has never seen such rapid growth above GDP, with the report claiming that a total of $97.7trn will be spent on construction globally over the next ten years.

The reason behind China and India’s spurt in business activity is clear, as the countries will drive growth in emerging markets with rising populations, rapid urbanisation and strong economic growth all key drivers for construction. Significantly, China overtook the US in 2010 to become the world’s largest construction market, boosted by stimulus spending. The country’s construction market will more than double in size over the decade, reaching $2.5trn by 2020, an amount that equates to as much as 21 percent of world construction. India, meanwhile, is predicted to overtake Japan to become the world’s third largest construction market by 2018. Boosting the positive outlook further, the US is poised to register a sharp rebound in construction with short term double digit growth in both residential and non residential building sectors.

It’s plain to see that construction will become one of the most important global growth industries of the next decade, and aside from the trailblazing nations of India, the US and China, other countries who are set to flex their construction muscles in the future are: Indonesia, Brazil, Canada, Australia and Russia.

Rise of the Aerotropolis
In the realm of new era town planning and construction, airports are set to form an integral part of urban life in the future, if not even serving as their very heart. So much so that a new term has been coined for hubs with airports at their centre – the Aerotropolis.

A leader in this new urban development, China is at the forefront of the trend. About 100 new airports are set to spring up in the country by 2020, and each one will be within close proximity to cities to make life more practical for its resident. It’s estimated that 1.5bn Chinese people will live within 90 minutes of an airport. A new book ‘Aerotroplis: The Way We’ll Live Next’, charts China’s new airport centric approach with the very pertinent premise being that the city of tomorrow will be built around airports as opposed to the other way around.

So why focus so intensely on the airport and its convenient, centrally located position? The benefits are obvious and in today’s market place, in which air travel is becoming ever more crucial, accessibility and speed can’t be underestimated. It’s not only travel happy businessmen and holiday makers that have been accounted for; trade is also an important factor since the value of air cargo is dramatically on the up.

Existing Aerotropolis’ which formats, town planners can model new variants include Dubai, Abu Dhabi and Doha, and South Korea’s New Songdo City- a manmade island popularly referred to as “pocket Manhattan”.

As innovations and new movements in the area of construction become ever more globalised – those poised to capitalise on the new era include leading architects, designers and planners. China is now well positioned to become something of a hotbed for new architectural ideas, practices and experiments.