Macroeconomic factors curb growth in global construction industry in 2022, but infrastructure, energy, and manufacturing investments offer new opportunities

NEW YORK, NY, 31 July 2023 – The world’s 100 largest construction companies generated revenues of more than US$1.511 trillion in 2022, an increase of 6.3% from the year prior, according to the annual Global Powers of Construction (GPoC) report, produced by Deloitte Spain. The report analyzes the worldwide construction industry and examines the strategies and performance of the top listed construction companies in 2022.

“Construction’s expected rebound from the COVID-19 pandemic unfortunately was hampered by such factors as inflation, supply chain disruption, and the Russia-Ukraine war,” says Javier Parada, Engineering and Construction Leader, Deloitte Spain. “But with many governments planning major infrastructure projects as well as the increased investment in the green energy transition and manufacturing construction, there are significant trends emerging that should drive growth in the future.”

By geographical area, 54% of revenue originated from companies based in China, with the remaining revenue coming from Europe (particularly France and Spain), Japan, the United States and South Korea; these companies account for 20%, 10%, 8% and 4% of total sales, respectively. And despite the headwinds experienced in 2022, no region saw a decrease in sales.

But macroeconomic factors did take a toll on market capitalization value, with all geographical areas seeing a decrease. Overall, there was a 14.5% decline among the Top 100 GPoC in terms of market capitalization despite the recovery shown by markets in 2021 following the easing of the pandemic. Stock market performance consistently dropped in all regions, with market capitalization of the Top 30 companies in the ranking comparable to levels achieved in 2019.

The steady increase in interest rates as governments struggled to battle rising inflation took a particular toll on construction in 2022, with low-cost financing becoming scarce and cost inflation impacting margins. Labor shortages, remote work, lack of building materials, and online shopping were other factors affecting both residential and non-residential construction alike. This includes the GPoC construction EBIT margins, which have continued to fall and reached an average of 4.2% of revenues.

Yet there are many niche opportunities for the industry appearing as a result of the digitalization and decarbonization of the economy. These should give rise to increased investments in infrastructure, including telecommunications networks, data centers, battery plants, electric vehicle factories and more. To harness this demand, however, construction companies will likely need to resolve certain outstanding challenges, some of which include:

• Transformation to improve profitability: Construction companies should continue to transform digitally and take advantage of emerging technologies, something that, due to tight margins, has only recently become top of mind for many CEOs.
• Environment , society, and governance (ESG): As ESG takes on greater importance in government procurement models as well as with investors and other stakeholders, companies in the industry should focus more on sustainability, the circular economy, and health and safety.
• Talent management: With workers’ average age higher than that of other industries, construction CEOs should prioritize increasing diversity and encouraging the capacity to attract and retain younger workers.
• Contracting and public-private partnerships (PPP): As public budgets are under pressure due to elevated public debt and the need across the board to dedicate a higher share of the budget to health, pensions and defense, public private partnerships are expected to play a significant role over the coming years. As PPPs increase as part of public infrastructure investment, both governments and construction companies should explore new contracting models that balance the distribution of risks and establish clear rules for contract governance.

Despite challenges, the GPoC analysis reveals there are strong opportunities for construction companies in the form of geographical and portfolio diversification. In 2022, international sales and non-construction revenue of the GPoC represented 15% and 24%, respectively. Internationalization and diversification can help make it possible to balance risks, but it can likely expand the range of opportunities in infrastructure and sustainability.