Construction boom brings opportunity and emerging risks

The global construction market is set for a sustained period of strong growth post-Covid-19, driven by government spending on infrastructure and the transition to a net zero society.

However, the switch to more sustainable buildings and infrastructure, the upscaling of clean energy facilities and the adoption of modern building methods will transform the risk landscape, with radical changes in design, materials and processes.

These challenges add to currently-stressed supply chains, shortages in materials and labour and increased costs, which all come against the backdrop of years-long tight margins in the industry.

A report from Allianz Global Corporate & Specialty (AGCS), Construction risk after Covid, explores both acute and long-term risk trends for the construction sector.

“Covid-19 has brought about a new age for the construction industry,” says Yann Dreyer, Global Practice Group leader for Construction in the global Energy & Construction team at AGCS.

“While construction projects continued during the pandemic, and further growth is to come, the overall environment has changed fundamentally. The industry faces new challenges around supply chain volatility and spiking material costs, skilled workforce shortages and the heightened focus on sustainability.

”In addition, the accelerated deployment of cost-cutting strategies and implementation of new technologies and designs may well result in accelerated risks for construction companies and insurers alike. Continued risk monitoring and management controls will be key moving forward.”

The strong growth outlook for the sector is based on a number of factors, such as rising populations in emerging markets and significant investment in alternative forms of energy such as wind, solar and hydrogen, as well as power storage and transmission systems.

The shift to electric transport will require investment in new plants and battery manufacturing facilities and charging infrastructure.

Buildings are not only expected to improve their carbon footprint, but will also require improved coastal and flood defences and sewage and drainage systems in many catastrophe-exposed regions in response to more frequent extreme weather events.

At the same time, governments in many countries are planning major public investments in large infrastructure projects to both stimulate economic activity after the pandemic crisis and drive the low carbon transition.

In the US, a $1trn+ infrastructure package touches everything from bridges and roads to the nation’s broadband, water and energy systems.

At the same time it has announced plans to invest in a number of large infrastructure projects around the world in 2022 in response to China’s ambitious Belt & Road Initiative, which could stretch from East Asia to Europe. 

Four countries – China, India, US and Indonesia – are expected to account for almost 60% of global growth in construction over the next decade.