Taking the Long View

2 April 2006 (Last Updated April 2nd, 2006 18:30)

Construction and design are showing signs of life in Europe and the USA, with further improvement expected in 2005. While in Asia business is booming thanks to strong economic growth.

Global economic recovery has been painfully slow, but the upturn in US and European markets should make developers less hesitant about investing in new projects and provide a much-needed boost to the construction industry.

As usual, there are several high-profile flagship projects underway, with London in particular inspiring designers to create ever more impressive and innovative structures. And over the next five years, there is a glut of new skyscrapers planned, as well as major residential projects, such as the development of the M11 corridor.

However, the industry as a whole is unlikely to see the full benefits of this recovery - at least not for a while. Looking at the construction projects completed in the USA in early 2004, housing and public non-residential construction were riding high, but private non-residential construction continued to decline.

HOPE FOR THE FUTURE

Looking further afield, there are some positives. For example, there was significant growth in the fees earned by leading interior design companies in 2003 and further growth is anticipated in 2004 and 2005. The 2003 figures showed that the top 100 interior design companies in the USA earned fees of nearly US$1.5bn, an increase of just over 1%.

While this is not a dramatic rise, the majority of the top 50 companies all saw significant growth in their income from fees and the figures are certainly healthy enough to encourage greater optimism within the wider construction and design community.

The areas that contributed most to earnings were office and retail design, although both these markets have contracted slightly. In the healthcare sector, there was significant growth, and it is now the third largest category in terms of fees. However, there was a fall in demand from financial institutions and residential clients.

The good news for the construction industry is that new buildings accounted for over half of the fees earned by the top interior designers, despite the fact that the market share for new builds has been shrinking in recent years. Interior designers also received more international business during 2003.

ASIAN CONSTRUCTION BOOM

This can partly be explained by the boom in design and construction in Asia. Economies such as China continue to develop and refine their infrastructure at a dramatic rate; the skyline of Beijing is dominated by cranes, not only because of the Olympic Games in 2008 but also due to the enormous demand for new buildings, fuelled by rapid economic growth.

"China has continued to develop and refine their infrastructure at a dramatic rate."

However, the fact remains that in the West building contractors will see only a limited improvement in market conditions for the time being. The healthcare and residential sectors have been strong in recent years, and are likely to continue to perform well, while retail, office and, eventually, manufacturing should also show some gains.

These considerations have should be balanced against a declining power sector and stagnation in schools and universities. The cost of materials is also likely to remain volatile for some time to come. For instance, in early 2004 the price of steel increased sharply, as did prices for copper, aluminium and roofing materials. It is anticipated that contractors' costs will continue to rise during 2005, although perhaps not as rapidly as in recent years.