World constructionreport 2012

Program, Cost, Consultancy

World Construction 2012

Davis Langdon, An AECOM Company 2World Construction 2012

2011 was yet another difficult year for construction globally. Construction spending growth has stalled and 2011 was the fourth consecutive year with little or no growth. Overall, world construction spending grew by just 0.5% to $4.6 trillion and is still below the levels achieved in 2007. However, on a positive note, 2011 saw the first increases in world construction spending since the start of the recession. Although, the outlook for 2012 is looking slightly more pessimistic as the developing economies responsible for much of the growth in the recent past are starting to slow as their developed country export markets continue to decline.

On a regional basis, all regions apart from Western Europe and North America saw positive construction spending growth, although at reduced levels to those of the recent past. Asia and Latin America were the fastest growing regions in 2011 by a wide margin.

For the second year running China was the largest construction market in 2011, and is forecast to be the fastest growing market in 2012 (Figures 1 and 2).

There were some large regional differences throughout the year. Construction spending in Western Europe was the most affected with a contraction of -3%, with the most significant falls occurring in Portugal, Ireland, Italy, Greece and Spain. The continuing sovereign debt problems and Eurozone crises suggest that Western Europe will continue to struggle in the near term.

Construction market overview

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Figure 1: Global Construction Spending 2011 (US $bn)

Figure 2: Global Construction Spending Growth 2011-12 (% change)

Davis Langdon, An AECOM Company 3World Construction 2012

Our review of world construction in 2011 and outlook for 2012 concentrates on the six main trading blocks, namely: Africa, the Americas, Asia Pacific, Australasia, Europe and the Middle East.

Asia PacificAsian markets are expected to continue to exhibit robust construction spending growth in 2012. China (+9%) is the standout followed by India (+8%), Indonesia (+8%) and Vietnam (+7%). All sectors are likely to exhibit significant growth, largely led by non-residential construction.

China not only exhibits significant levels of growth but is also the largest market in the world. China accounted for 41% of the Asia Pacific total in 2011 (almost twice the size of the Japanese construction market). Construction spending in China is shifting from the coastal cities to the interior and western provinces. Through to 2015, infrastructure spending is expected to dominate China’s construction spending.

India, on the other hand, only accounted for just over 10% of the total Asia Pacific market. Given the current constraints on public finances, India is seeking increases in private funding solutions in the provision of much of the new infrastructure needed.

Japan is expected to see sizable increases in construction spending through to 2015 as the earthquake/tsunami reconstruction effort gathers pace. However, the reconstruction is only expected to provide a short-term spike in construction activity which is likely to return to trend later in the decade.

In Southeast Asia relatively strong construction spending growth isalso expected in Indonesia (+8%) and Vietnam (+7%) as both countriesupgrade infrastructure to support their growing populations.

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Regional overview

China

Davis Langdon, An AECOM Company 4World Construction 2012

EuropeSovereign debt crises and the uncertainty in the Eurozone are continuing to constrain construction spending growth in many Western European markets. Only the Scandinavian counties are likely to be largely immune from the impacts. Infrastructure construction is expected to see declines through to 2015 with only limited growth forecast in both non-residential and residential construction spending. Austerity measures in many Western European countries have focused on the postponement/cancellation of many planned infrastructure projects.

Broadly speaking, construction spending in Western Europe is likely to remain stagnant for most of the decade with little or no growth expected. Indeed, construction spending growth will be significantly lower in Western Europe than trend growth for the rest of the world. It is likely that it will be 2020 before the market in Western Europe returns to output levels last seen in 2007.

The fastest growing countries in Western Europe in 2012 are expected to be Germany (+1.8%) and the U.K. (+1.6%). Ireland, Spain, Portugal, Italy and Greece are likely to experience continuing declines in construction spending through to 2015, with little optimism about growth later in the decade. Indeed through to 2015, their share of the Western European market is expected to decline significantly (by as much as 10%) while growth in the remaining countries remains largely stagnant.

In Eastern Europe there is a more positive picture of construction spending growth through to 2015. However, it should be noted that these markets are significantly smaller in terms of volume than those in

Western Europe. The fastest growing sector is forecast to be the non-residential sector closely followed by infrastructure.

The fastest growing countries in Eastern Europe in 2012 are expected to be Poland (+9.1%) followed by Russia (+6.5%) and Turkey (+5.5%), all with growth levels significantly above the average for the region as a whole.

In Russia, construction spending on preparations for the 2014 Winter Olympics and the 2018 FIFA World Cup are boosting already booming energy and transport infrastructure spending.

Middle EastIn the Middle East, moderate construction spending growth (+4.2%) is expected in 2012. Much of the growth will be led by increases in infrastructure construction spending, in particular energy infrastructure.

Saudi Arabia, the largest market in the region, is also expected to lead much of the growth in the region (+5% pa), through to 2015. Followed by a return to growth in the U.A.E. (+4% pa), much of which will be led by Abu Dhabi, rather than Dubai which remains subdued and is largely expected to remain that way through the forecast period.

In addition, prospects in Qatar continue to remain positive. Indeed, preparation for the FIFA World Cup 2022 and upgrading of associated infrastructure is expected to make construction spending growth in Qatar amongst the fastest in the world throughout the next decade.

Russia

Davis Langdon, An AECOM Company 5World Construction 2012

AfricaFollowing the recent turmoil in much of North Africa, construction spending remains constrained, although there are expected to be significant opportunities going forward. In particular, reconstruction in Libya and infrastructure upgrades in Egypt are likely to act as a stimulus for the region through to 2015. However, much of this has yet to materialise given the ongoing uncertainty in the region.

In the rest of the region there is a mixed picture emerging, with some areas of strong growth, particularly Nigeria (+8%), with continuing declines in others particularly South Africa. Infrastructure construction is forecast to be the fastest growing sector of construction output through to 2015.

The AmericasConstruction spending continues to be constrained in the U.S.A., largely as a result of the housing crisis and the impending election. The construction market in the U.S.A. is expected to remain stagnant in 2012, with little or no growth forecast, much like construction spending in Western Europe. Some growth is expected in Canada and Mexico, although the problems in the U.S.A. are expected to constrain growth in both markets through to 2015.

In contrast, much of South America is expected to see significant growth in construction spending through 2012. In particular, the larger markets of Brazil, Argentina and Chile are forecast to see construction growth of over 5% in 2012. Indeed, Brazil and Panama are likely to have construction spending growth of over 10% pa through to 2015, significantly above the average for the region as a whole. Much of the growth in South America will be led by increases in infrastructure spending (particularly energy and transportation), closely followed by spending on non-residential structures.

In Brazil, preparations for the 2014 FIFA World Cup and the 2016 Rio Olympics are well advanced and increases in construction spending are largely being led by infrastructure upgrades.

AustralasiaConstruction spending in Australia is expected to grow by close to 5% in 2012, boosted by the global demand for natural resources. Similarly, construction spending in New Zealand is forecast to rise as earthquake reconstruction moves forward through to 2015.

Panama

Davis Langdon, An AECOM Company 6World Construction 2012

In the short term there is expected to be a degree of stagnation in global construction spending in 2012, with more sustained growth not expected until 2015 onwards. Developing countries are expected to lead growth in 2012. The strongest construction spending growth will again be in China, followed by India and Indonesia. In addition, reconstruction spending in both Japan and New Zealand will provide a temporary stimulus to construction spending in both countries. In Latin America, the only other major growth area, Brazil and Panama are also expected to exhibit robust construction spending growth throughout the forecast period.

Going forward, the outlook for global construction is likely to be dictated by development status. Generally, the share of global construction spending continues to shift from developed country markets to developing country markets (Figure 3). In particular, the Asian market has increased from a share of 31% in 2005 to a forecast share of 46% by 2020. This shift is largely at the expense of decline in the Western Europe market which has shrunk from a share of 35% in 2005 to a forecast share of 24% in 2020.

These are significant changes in the structure of the global construction market over a relatively short time-frame (i.e. 15 years) and when combined with relative growth levels (i.e. rapid spending growth in developing countries and stagnation in developed countries) suggest a new focus for global construction spending in the future.

General outlook

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Figure 3: Share of construction spending by region 2015-20Source: IHS Global Insight (2011)

Davis Langdon, An AECOM Company 7World Construction 2012

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Program, Cost, Consultancywww.davislangdon.comwww.aecom.com

David CrosthwaiteDavis Langdon, an AECOM companyMarch 2012