China’s share of the global construction market forecast to rise from 18 percent today to 26 percent in 2025 as a result of increased urbanization and a growing middle class, according to a new report. Construction in India and the United States is also predicted to grow significantly. Wikimedia Commons/Marshall Strabala
A new study projects that China, India, and the United States will account for nearly 60 percent of construction growth by 2025.
August 20, 2013—According to a new report, construction output is expected to increase by more than 70 percent—to $15 trillion worldwide, by 2025. China, India, and the United States are expected to account for nearly 60 percent of that growth, whereas growth in Japan will be considerably less robust during that time. The findings indicate that some design and construction firms, even those in growing areas, may have to look outside of their immediate markets for growth opportunities.
Global Construction 2025 is the third in a series of benchmark studies by Global Construction Perspectives, a global think tank based in London, in conjunction with Oxford Economics, a global commercial research firm formed in collaboration with Oxford University. The studies forecast the growth potential of the construction industry using the economic downturn that began in 2008 as the starting point. The researchers examined such fundamental factors as economic trends, population dynamics, and the current state of infrastructure in projecting global and regional market growth in such key sectors as infrastructure and residential and nonresidential construction. “This third study is looking at recovery, looking at the size and shape of it globally as well as at the country level, and giving people a sense and feeling for the timing of the recovery—what markets might look like and how the recovery will shape the sector,” says Graham Robinson, the executive director of Global Construction Perspectives.
The report indicates that at present 52 percent of all construction activity is taking place in such emerging markets as China and India and predicts that by 2025 those markets will account for 63 percent of all activity (in addition to contributing significantly to growth, as mentioned above). In 2010 China overtook the United States to become the world’s largest construction market, and although construction is expected to slow in China because of slower population growth, projections show that the nation will maintain its leading position. China’s global share is forecast to rise from 18 percent today to 26 percent in 2025 as a result of increased urbanization and a growing middle class. “By 2020 there’s going to be over 30 million households in China earning more than $30,000 a year,” Robinson says. “That growth in middle income families drives lots of cycles of construction, such as retail, distribution, and higher-end residential.”
India’s share of the global construction market is expected to increase from 4 percent today to 7 percent by 2025, and the country will overtake Japan as the world’s third-largest market. India is also expected to see a rise in urbanization and middle class households, but in large part its growth will be a reflection of the country’s young population. The Population Council, a New York City–based organization that conducts research and implements humanitarian programs around the world, reports that 30 percent of India’s population is 10 to 24 years old and that this generation is healthier, more urbanized, and better educated than past generations. Because its population is much younger than that of China, India is widely expected to surpass China in population size by 2050. “In India, you’ve got growth in middle income households and you’ve got demographic changes, and there’s going to be 100 million more city dwellers in India in the next eight years,” Robinson says. “That’s what drives construction.”
The United States is also expected to see an uptick in construction as a result of population growth, but its share will remain at 12 percent of the global market, according to the report. “There’s been underproduction of construction in the U.S. for some years now, so there is a demand for housing,” Robinson notes. “There are currently at or around 1 million units a year being built in the U.S., and that’s grown quite substantially over the last two years. We estimate the long-term average for the U.S. is around about one and a half million units a year, so you can see there is another 50 percent growth to come.”
The report also anticipates growth in certain other Asian countries. Indonesia, Vietnam, and the Philippines are becoming increasingly attractive to export-oriented manufacturers, and together they represent a $350-billion construction market that is growing at more than 6 percent annually, the report says. “If you’re looking at Asia, some of the peripheral nations—we call them the Asian Tigers—are definitely worth looking at,” Robinson says. “Indonesia in particular has sizable growth opportunities and is going to be one of the world’s largest construction markets by 2025.”
Many nations are expected to see growth over the period, but others—Japan, for example—will see their construction sectors slow as a result of declining or aging populations and decreased economic growth, Robinson says. Despite its slowdown, Japan is expected to be the ninth-largest contributor to global construction growth. “Japan’s probably the country with the lowest growth in construction because it’s got none of the dynamics that some of the emerging economies have,” he says. “It’s got a declining population, it’s got an aging population, it’s got less of its population in the working age—so more retirees—and therefore, it’s got less dynamics in its economic growth.” What is more, the market in western Europe is expected to contract by nearly 5 percent compared with its prerecession peak in 2007, whereas the market in North America is expected to be nearly 40 percent larger.
The way in which engineering and construction firms respond to the changes in the global market will depend on their locations in the world, but most are expected to seek new opportunities in emerging markets. “We see companies that are challenged for growth in their domestic and traditional markets looking to expand their global presence to find growth,” said Franco Turrinelli, the executive vice president for corporate development for Textura Corporation, a firm based in Deerfield, Illinois, that specializes in collaboration software for the construction industry. Textura was a sponsor of the study, and Turrinelli replied in writing to questions from Civil Engineering online. Firms are expected to adjust their operations domestically and abroad. “We expect the focus on domestic and traditional markets to shift to higher efficiency and risk management in order to maximize profitability,” Turrinelli said. “At the same time, companies will experience greater challenges in managing far-flung operations in countries outside of existing expertise.”