Alastair Wallace: 2022 defined by change and unpredictability

Alastair Wallace: 2022 defined by change and unpredictability

Alastair Wallace

Alastair Wallace, senior partner from Thomas & Adamson, reviews 2022 and outlines what he feels lies ahead for the construction industry in the coming year.

It was the year that was defined by change and unpredictability. Covid restrictions might have gradually eased and disappeared, but were replaced in the headlines with stories of war, energy crises and looming recession.

Every industry has struggled to keep up with the fast-moving macroeconomic and geopolitical situation which has touched all our lives, with construction particularly affected in terms of supply and demand.

The Brexit hangover has continued in terms of labour shortages and import tariffs, while shrinking budgets are threatening capital projects and government strategies and policies such as rent freezes continue to impact certain sectors.

But in the industry centred around building and rebuilding cities and communities, there is hope ahead.

There will always be new projects and schemes requiring our services and the experience and resilience gained in the ever-turbulent times since the global financial crisis 14 years ago will stand many firms in good stead.

Industry leaders identified the challenges early in 2022, as war erupted following Russia’s invasion of Ukraine, but few could have foreseen the scale and impact this would have on raw materials. A huge percentage of steel is imported from Russia and Ukraine, massively affecting supply and price, while soft wood, aluminium, and glazing materials are imported from European nations like Germany and Poland who are dependent on Russian gas supplies for energy. Material costs are now at a 40 year high, while the energy crisis is set to worsen. German manufacturing is expected to be especially affected, with stories of factories reducing operating hours to conserve fuel, further squeezing supply.

In terms of Brexit, the UK industry faces additional layers of cost and paperwork with import taxes and documentation, while EU-linked staff shortages are increasingly acute. While recruitment is currently an issue for every business and industry, a major challenge for the construction sector has been the huge number of European construction workers who appear to have returned home, meaning that skilled labourers, such as stud partition teams and particularly bricklayers, are in seriously short supply.

It’s not about training or even pay, it’s just about access to the labour market and, like any sector, there just isn’t the availability. The challenge facing the industry is determining how that shortage of skills and materials will be impacted by this inevitable downturn in workload and to what extent one will trade off against the other.

In the British market, the story of the year has been delays and fluctuating costs. Subcontractors are unable to provide fixed tenders as the suppliers cannot hold the price of materials such as steel because they keep increasing in costs, while the predicted descent into a recession is seeing major spending cuts in the all-important public sector. Capital works at government and local authority level have become increasingly vulnerable to budget cuts as priorities are reassessed.

That was the story of 2022. Looking ahead to 2023, the reality is that nothing falls away completely; there will still be spending. The public sector will still have to maintain and construct new housing, schools, and infrastructure as demand for places increase in suburban and green belt communities - but difficult decisions of scale and timeframe will have to be made to balance budgets. They won’t be able to do it all.

In Scotland, government legislation could provide both challenges and advantages.

The much-discussed review of the Tenements Act by the Law Commission could bring in compulsory property owners’ associations to help improve standards and upkeep of buildings. While the rent freeze issue has potential to hamstring the industry. Combined with rising interest rates, regulation of rent prices will significantly stifle residential and affordable housing development, with the buy-to-let market worst affected, and some projects halved in scale as a result.

But the construction industry is still busy and is famously resilient. Year on year, the independent EY Attractiveness Survey continues to name Scotland as the most attractive location for inward investment in the UK, outside London1, so opportunities will arise and there will still be entrepreneurial creative developers who come up with new ideas.

It’s all about laying the right foundations so that when the right opportunities arise, you can make the right move at the right time.

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