Digital tools essential to construction industry growth
Analysts recommend innovation and investment to realise growth forecasts for 2025
Digital tools will be “essential” for the construction industry to realise growth forecasts for 2025, analysts have said.
While the industry is expected to be stable and even strengthened through 2025-26, growth is likely to be slow, impacted by ongoing challenges around labour, costs and the supply chain, forecasts suggest.
Market position
The UK’s modest economic growth of 1% in 2024 was plugged by government spending and recovering consumer finances. Now these same factors are expected to spur on construction activity.
In its annual Construction Industry Forecast, Glenigan pointed to the stabilisation of private sector project starts and a 7% increase in contract awards in Q3, as signs of “strengthening” in the industry. Similarly, in its UK Construction Market View, Winter 2024, Arcadis pointed to modest output growth of 0.8% in Q3.
Now underlying project starts (those <£100m) are forecast to rise by 8% in 2025 to £74,258m, according to figures from Glenigan. This could include an 18% rise in office project starts, influenced by changing work patterns, along with growth of 13% in private housing and 11% in social housing, and a 6% rise in hotel/leisure, supported by improved consumer spending.
Within this, the UK’s landscaping services sector is expected to deliver revenue growth of 3.1% CAGR over five years, reaching £6.5bn by 2028-29, according to findings from IBIS World.
This sector being driven by a range of wider market factors, including an increase in housebuilding activities, government investment in infrastructure and public sector construction projects, and modest improvement to household budgets and consumer spending power.
Labour’s first Budget, announced in Autumn, included a £500m increase to the Affordable Homes Programme and a £100bn boost for capital spending. Further investment in public sector construction is expected to be supported in the Spring Spending Review, when longer-term spending plans will also be shared, including the final Industrial Strategy and the next Road Investment Strategy.
Surveys of business leaders, including the Purchasing Managers Index (PMI), suggest “sentiment has been improving too”, Glenigan reported.
However, consensus amongst commentators is that the going remains tough. Analysts across Glenigan, Arcadis and IBIS all point to ongoing challenges around labour supply as a pain point for businesses.
ONS metrics show that the size of the labour force has contracted, while wages are expected to rise through 2025. And the upcoming increase to employer’s National Insurance contributions could add between 0.75-1% to construction costs, according to Arcadis.
And despite material availability and inflation stabilising, “contractors should stay alert to possible supply interruptions, especially from overseas”, says Glenigan. Contractors diversifying suppliers has already contributed to higher input costs for projects.
“Essential” innovative solutions
Innovation and the adoption of digital tools will be critical for businesses to navigate these challenges, analysts from Glenigan have said.
“Investing in improved design solutions, site management practices, and offsite options will be critical to completing projects efficiently and profitably.
“Many firms may find that this requires a more collaborative approach and the adoption of digital tools to streamline workflows and minimise waste,” Glenigan’s Construction Industry Forecast 2025-26 predicted, adding: “Adoption of innovative solutions are essential to effectively address rising costs, funding approval issues, supply chain constraints, and skills shortages.”
Existing & emerging digital tools
Digital tools are already commonplace across the construction sector, from embedded solutions like BIM and CAD, to emerging technologies like AI, drones, and IoT devices.
CAD can support with design and drawings for construction projects, while BIM has been widely adopted to integrate data in a way that improves coordination, cost estimating and project scheduling between contractors at Build stage.
AI is a top priority for many businesses now, with predictive analytics helping with processes like monitoring material supply, for example. And drones are being deployed to complete surveys or support marketing drives, while Internet of Things (IoT) devices can be used for equipment tracking and maintenance planning, or environmental management.
M Squared’s solutions
Kerr McEwan, Managing Director of M Squared, said: “Technology is making us more efficient and scalable.
“Labour resource – getting boots on the ground and managing productivity – is probably the biggest challenge within the industry, and the biggest cost in our business, so we’re working to combat that using new technology.”
Apsis Business Components, a partner and supplier of M Squared, is one tech company that’s created innovative software that understands these challenges facing the industry.
Developed by a team who have worked hands-on in sector at the most senior levels, the easy-to-use software replaces the need for more than one system, delivering reports and business insights in real time. Apsis harnesses a company’s valuable data to provide crucial decision-making information such as identifying productivity imbalances, project planning, job profitability, cost management, procurement and risk management. Working in collaboration, the implementation of Apsis is proving a valuable investment.
McEwan added: “We’ve spent the last 18 months developing our resource management system with Apsis, to help us price jobs more accurately. It helps us to better price, plan and procure for a job, then assess and report on it.
“This means we can provide better value for the clients – offering different cost options and value engineering for them to win projects – and, ultimately, budget certainty – pricing jobs using first principles rather than going rates.
“Next we’re looking to implement AI to take all our data and give us insights and strategic learnings on jobs.”
Sources
IBIS World, Landscaping Services in the UK, Oct 2023
Glenigan, Construction Industry Forecast (UK & ROI) 2025-26
Arcadis, Market View Winter 2024