Net zero is no barrier to a globalised market. A focus on local materials and labour should not mean taking an eye off the market elsewhere
Headlines about the end of globalisation are rife. The reasons cited for greater deglobalisation in parts of the world are numerous – from the war in Ukraine and the rise of populism, to more businesses coming to the conclusion during the pandemic that supply chains are too long, too reliant on one supplier or indeed too narrowly focused on one country.
Yet it’s clearer now than ever how interconnected global and regional markets remain. Across the construction industry in many cities around the world we see a familiar pattern: near universal inflationary trends founded on labour shortages, demand exceeding supply, and disruption in supply chains hitting costs and programmes.
The results of our International Construction Market Survey also demonstrate that, whether building a super-tall tower in New York or delivering a commercial scheme in London, we are part of a globalised industry which is reliant on complex supply chains and, sadly, too few skilled workers.
We are all better for working in a globalised construction market which allows the free flow of talent, ideas and materials to support projects and programmes of all sizes.
Not only is it often impossible to source materials completely indigenously, but also even local chains and costs are heavily impacted by global market trends
Aware of potential disruption and of the climate costs, clients are tempted to look to onshoring or near-shoring materials and skills – and we are undoubtedly entering a period of increased regionalisation. However, there is no way to unilaterally sever construction from the global system, nor would it create any advantage.
Not only is it often impossible to source materials completely indigenously, but also even local chains and costs are heavily impacted by global market trends. For example, fluctuations in natural gas prices have a substantial impact in the UK despite us having access to strong domestic supply relative to our European neighbours. Aside from natural resources and manufacturing capacity, international building design trends also often mean that materials need to be sourced from other countries.
>>Also read: Contract clauses for the climate
>>Also read: Infrastructure update: energy transition
Even when looking for nearer or friendlier countries to do business with, clients need to mitigate risk and adopt a wider, global view of their construction supply chains to manage the uncertainty as we brace for further challenging months.
For real estate client teams operating across global markets, there is a need to consider development risk and viability. They must look at investment trends, assess the cost of construction in specific markets, the available capacity and the operating and political landscape.
When faced with these immediate hurdles to overcome, it can be easy to forget to look to the future
For those clients focused exclusively on the UK, they must be prepared for further increases in construction costs that will impact the viability of planned projects, as labour shortages, Brexit red tape and war in Ukraine maintain pressure on prices.
When faced with these immediate hurdles to overcome, it can be easy to forget to look to the future and to longer-term issues where the industry needs to be on the front foot. Clients in all markets need to continue to drive the green agenda and consider the commercial risks of stranded assets. In doing this they must look ahead to the likely tightening of expectations and requirements for green-collar jobs and net zero delivery.
Such moves risk exacerbating pressures, if they are not carefully planned for and managed. Net zero need not be seen as a barrier to a globalised construction market. It is beneficial to focus on locally sourced skills and materials and renewable resources wherever possible – but forgetting to keep an eye on the market elsewhere at the same time will leave businesses and projects at risk.
Success in tackling all these global and local challenges will come down to enhancing performance – companies finding ways to innovate in the procurement, delivery and management of their projects.
Neil Bullen is global managing director for real estate at Turner & Townsend