Buildings are made with the aim of being available for a very long useful life. This requires forward-looking planning, thinking and acting. It seems reasonable to conclude, therefore, that the industry would be of interest to long-term investors; after all, the fundamental demand for construction is unlikely to dry up. But you don’t need to have centuries in mind for an investment in construction to pay off – the following four trends make the construction sector an attractive option for the current decade: Trend 1 – Urbanisation: The United Nations (UN) estimates that 68 % of the world’s population will be living in cities by the year 2050 – this represents an increase of the urban population by 2.5 billion people. Accompanying this growth is a higher demand for infrastructure. An example: Based on an expert opinion commissioned by the federal government, the backlog resulting from the lack of maintenance measures alone in rail infrastructure in our home market of Germany is estimated at just under € 50 billion in 2019. And according to calculations by McKinsey&Company from February 2018, Germany needs to increase its annual construction volume by about € 40 billion in order to reach its political goals for infrastructure and residential construction.
Trend 2 – Energy efficiency: The European Union wants to cut its greenhouse gas emissions by the year 2030 to 40 % below 1990 levels. For this reason, among others, clients are increasingly demanding that existing buildings be adapted with a view towards higher energy efficiency and lower emission levels during operation. After all, the International Energy Agency estimates that the construction sector is responsible for about 40 % of the direct and indirect CO2 emissions.
Trend 3 – Financing environment: Low interest rates make real estate an attractive investment for several investor groups – a situation we still see to a great degree in our largest market of Germany, for example. Moreover, low interest rates are facilitating the financing of project developments. However, local overheating of property and rental prices can no longer be ruled out.
Trend 4 – Digitalisation: In contrast to sectors like the automotive industry or consumer goods industry, the degree of digitalisation in the construction sector remains relatively low. Experience has shown, however, that the digitalisation and networking of data during the life cycle of a building holds advantages for the various project participants – be it during the design, build or operate phases of the building. The increasing digitalisation of processes, therefore, allows us to expect significant productivity growth in the construction industry.
These four large trends are thus decisive for the attractiveness of the sector. But what is decisive in determining which company is awarded a contract? What do building clients look for in this regard?
Here it is important to make a distinction between the public and the private sector: While price is still mostly the decisive criterion for public-sector clients, private clients often look for the best offer – and this need not always be the lowest bid. The costs over the entire life cycle, including the operating costs, are also taken into consideration. Additional criteria play a role as well: As every building is unique, clients must be able to trust the abilities of the construction company. This trust is established through references, among other things. During tender processes, we are often asked about comparable projects that we have successfully completed in the past. Just as important are the experience and the know-how of the staff of the bidding construction company, the technical characteristics of the bid, and the existence of innovative solutions which may save the client money and time, as well as professional and comprehensible processes.
In some parts of the public sector, the best bidder principle is beginning to gain a foothold. This principle entails public-sector contracts not being automatically awarded to the company with the lowest monetary bid, but also taking social, environmental and sustainability criteria into account. The STRABAG Group supports this principle, an initiative that is being driven by the trade unions and other organisations. From an overall perspective, the best bidder principle is better for the population and for the national economy than choosing what at first glance appears to be lowest bid. On the one hand, it is a way of securing local jobs. On the other hand, the costs of a building after the actual construction phase must also be taken into consideration – best bids include these costs in their cost estimate so as to minimise expenses over a building’s full life cycle.
Every building is unique. Unlike in industries with standardised products, therefore, it is not possible in the construction sector to perform sensitivity analyses showing the influence of changes to a dominant production factor on a company’s key performance indicator. Our business is not determined by just one driving factor; rather, the margins are influenced by several factors. These include certain business realities, such as the risk management system or the quality of our employees, as well as external influences such as economic growth (GDP) and demographic trends which affect the availability of qualified personnel as well as the demand for infrastructure. The level of public infrastructure spending – a euro invested in con- struction leads to demand in other sectors, with the result that the positive impact is multiplied in production and employment – and the financing environment for our clients constitute further factors
Published on website: 18.05.2020 – Last Update: 20.01.2021 11:09:54