Don't ditch long-term priorities when tackling 'perfect storm of challenges', report warns construction firms

However, the Leeds-based global professional services firm is encouraging firms to take a strategic approach and prioritise long-term goals, including sustainability commitments, to protect project viability and future profitability.

Despite falling demand, tender price inflation forecasts remain stubbornly high, and unchanged from the summer report. Real estate forecasts are 3.7 and 2.7 per cent for 2023 and 2024, respectively, and 5.5 and 4.5 per cent for infrastructure.

More concerningly, total construction new orders have been declining, settling below pre-pandemic levels by 10.9 per cent. The deflationary pressure that might be expected from this slowing demand is being offset by higher borrowing costs, labour shortages, and high material costs, which stand 42.3 per cent above February 2020 levels.

Whilst demand in the real estate sector as a whole slows, by sub-sector the landscape is more mixed.

Non-housing repairs and maintenance continues as a growth sector, which was up by 2.7 per cent in the last quarter. In contrast, private housing and private repair and maintenance performed poorly, down by 3.3 per cent and 1.3 per cent, respectively, reflecting high borrowing costs and tight household budgets.

In infrastructure, the impacts are being felt from the projects rescheduled due to the prolonged inflationary pressure, and a wider cooling of work pipelines, especially in rail and road sectors. However, the water sector is buoyant, with the upcoming start of the new asset management plan period (AMP8), and energy remains strong as the government invests in shoring up the UK’s power supply.

The report acknowledges that clients are becoming more risk-averse as they battle external headwinds and navigate supply-chain insolvencies.

However, Turner and Townsend advises firms to protect their long term goals, including sustainability, as energy efficiency and carbon reporting become increasingly important for long-term compliance, attracting investment, and avoiding ‘stranded assets’ in client portfolios.

Michael Grace, strategic lead for Yorkshire at Turner and Townsend, said: “In the face of immediate cost challenges, it may appear an attractive option for businesses in Yorkshire to dedicate their efforts to firefighting the issues of ‘today’, while losing sight of commitments to policies like net zero.

"However, clients across the region should instead be prioritising their long-term strategies, and understanding how profitability, project performance and sustainability can be complementary goals.”​​​​​​​