It’s May, the midpoint of Q2—and a great time to take a moment for a midyear review of top 2023 construction industry trends and risks. Where is our industry relative to predictions? What emerging trends are we watching that business owners should be monitoring to ensure strong performance?
2023 construction industry trends
First, a quick recap. According to research from Deloitte, 2023 initially looked to be a bit more volatile after strong growth in 2022. Deloitte predicted five key trends to watch:
- Variable market dynamics – continued strong growth in commercial and industrial sectors while the residential market would slow down.
- Ongoing supply chain pressures affecting lead times and volatile material costs
- Continued shortage of skilled workers, affecting hiring and labor rates
- Increased implementation of emerging technologies to drive efficiency
- Continual movement toward practices centered on ESG and sustainability
In short, the dawn of 2023 offered promise, but with a measured outlook. Frayed supply chains, labor market challenges, and volatile costs could certainly make this year challenging. This is playing out in the market to some degree and should be dictating where business owners focus for the second half of the year.
Navigating 2023 construction industry trends
According to research by ACG in late 2022, business owners were primarily concerned about two potential threats: economic slowdown and rising material costs. If you’re also focused on these threats, you’re in good company. Here is how we are seeing some business leaders contend with the challenges of the market.
Material costs. Savvy construction companies are looking to make material purchasing decisions earlier during bid and contract phases. This helps to lower the risk of rising material prices eating into profit margins. Some are adding contract clauses that cover escalating prices. Doing this successfully, though, requires the ability to forecast with real-time information—and this is a challenge for many construction firms.
Labor costs. Globally, construction firms are facing a talent shortage—and it can undermine project success and business growth. Forward-thinking firms are continually examining ways to improve staff and firm productivity by leveraging technology and refining processes, along with exploring ways to better retain their existing staff, through incentives and compensation. Of course, it’s essential to understand the firm’s financial position to do this—and structure contracts—without threatening profitability.
Ultimately, data including from CBRE suggests that rising interest rates and slowing economic growth will help to pump the brakes on recent market growth. While this will relieve some pressures, like material shortages and the talent crunch, it will also tamp down margins—and eventually opportunity. In short, as the midpoint of 2023 appears on the horizon, there is still turbulence ahead for the construction industry.
How can business owners ensure success? First and foremost, they have to gain financial clarity. Without it, gaps in their financials threaten profitability, and ultimately the business itself. Yet most contractors struggle with their business financials, partly because they don’t have the right high-level financial person on staff who can step into this role. As a result, they don’t have a real grasp on:
- Financial position, profitability, and current cash flow
- Job pricing, including the material costs that feed into it
- Trends in staffing and turnover
- KPIs tracking financial performance, including profitability
- Accurate forecasting to inform budgeting, based on real-time data
This is where DAAXIT can help. Through fractional CFO services, we create financial clarity and enhance profitability for firms in the construction industry, helping them take their businesses to the next level and attain financial freedom. Stay tuned later this month for Part 2, in which we’ll pull back the curtain on how to protect financial performance.