Skills supply remains key challenge as construction demand increases

How is the pipeline of construction labour and skills being affected by macroeconomic factors and the adoption of new technology? In a recent webinar, a panel of experts examined the challenges to securing appropriate skills for construction projects, as well as the measures necessary to improve productivity and labour supply in future.

Despite greater optimism about future construction workloads, thanks to large infrastructure project pipelines in several countries, a shortage of labour and skills remains one of the sector’s most pressing challenges around the world.

Large-scale infrastructure pipelines prompt cautious optimism

A lot is being asked of the construction industry at the moment, says RICS chief economist Simon Rubinsohn. The sector is seen as vital to growth and resolving so many of the big challenges that world economies face.

In central Europe there has been a downturn, both generally and in construction, says Turner & Townsend director of cost management services, Germany and Austria, Kirk Smith. While the geopolitical situation is creating uncertainty over where and how much to invest in construction, the German government is intervening by confirming a 1 trillion € investment over the next 10 years, roughly split between a €500bn infrastructure fund and €500bn defence fund, including making substantial investments and climate protection. Elsewhere on the continent, market stakeholders are waiting to see whether France, the Netherlands and other central European governments will announce similar initiatives.

The UK has some very significant infrastructure pipelines as well, explains KPMG director, Major Projects Advisory, Holly Davis MRICS. Last year, the Labour government announced plans to build 1.5m new homes by the end of this parliamentary term. Alongside this, there’s significant scaling up in what water companies are going to be asked to provide: for example, 30 major infrastructure projects over the next 15 years are designed to build greater resilience to droughts in the UK.

There is a lot of uncertainty in US construction markets as a result of fluctuating tariffs and the geopolitical context, says Currie & Brown director Rachel Personius. However, one positive outcome of this has been that clients making significant capital expenditure are putting more resources and time into project planning and historic data analysis to better understand how macroeconomic trends might affect project costs.

Turton Bond partner Will Turton MRICS agrees, explaining, ‘tech companies are revising their corporate real-estate strategies to entice their staff back into the office. Alongside this … demand for new data centres and their associated infrastructure has exploded. You can’t build them quickly enough.’ Rachel concurs: ‘Data centres and infrastructure are both growth sectors despite tariffs and costs uncertainty.’ Finally, further infrastructure investment is expected in preparation for the 2026 FIFA World Cup, which will be jointly hosted across 16 cities in the US, Canada and Mexico, and the 2028 Olympic Games, which will be held in Los Angeles.

Mace associate director Laeeq Hassan FRICS adds that, in contrast to other world regions, the construction industry in Saudi Arabia is performing exceptionally well. This is primarily a result of its Vision 2030 strategy and associated development projects such as NEOM, Red Sea Global and Qiddiya, alongside its hosting the 2034 FIFA World Cup.

Global competition for necessary skills creates pinch points

Laeeq continues that, with lots of major construction projects in the pipeline, a shortage of skilled labour internationally is the main challenge that the industry faces. He explains that the Saudi government is working to resolve this by bringing more resources into the country.

In the UK, data from the Office for National Statistics that there are more than 35,000 vacancies in construction and infrastructure, says Holly – more than half of which can’t be filled because of a lack of required skills, the highest rate of any sector in the country.

In sectors such as nuclear and defence, she explains, the UK is competing globally to attract people with high-level skills from an international pool. Coupled with long delivery periods required for these kinds of projects, those projects represent an experience that comes once or twice in a career and the skills pool is thus very small, creating another pinch point.

Kirk adds that central Europe is experiencing a lack of skilled labour in the mechanical, electrical and plumbing trades in particular.

Changing migration policies affect labour supplies

Given the UK construction industry’s reliance on an international skills pool, anything that affects migration also has a potential impact on the skills available for construction projects, continues Holly. In London, there was a decline of almost 30% in EU-born construction workers between 2019 and 2020 (pre-pandemic) because of the UK’s departure from the EU.

Rachel explains that similar challenges are occurring in the US where the construction workforce is around 30% immigrants. In an industry that is already struggling to find enough labour, changes to migration policies and laws could make securing skills on construction projects a bigger challenge.

After Brexit, central and western Europe saw an increase in Irish contractors who could cater to the demands of international clients expecting, for example, new data centres to be constructed quickly. In the past two years, where fewer new projects are under development, German and French contractors are trying to move into the same area by catering for international clients. This is exacerbating the skilled labour problem as companies are entering sectors and areas with which they are unfamiliar, explains Kirk. As a result, local contractors and international clients alike are needing additional support from companies such as Turner & Townsend to understand each other’s expectations.

New technology could appeal to younger workers

‘It’s a time of great change in the industry – the way things are done will be very different in the future,’ says Holly. ‘This will affect the kinds of skills and experience that new entrants to the construction industry will require. We also need to consider how technology could affect the productivity and working practices of people who are already in the industry’, she says.

Design for manufacture and modern methods of construction may for instance reduce the number of operatives required on site, and the kinds of skill those operatives need to have will be different. In addition, the greater use of generative AI and large language models will change the nature of work that is done by, for example, quantity surveyors or architects, she explains.

With prefabrication, we’re seeing a lot of opportunity to improve productivity and attract more labour, says Rachel. Where owners are trying to make projects more easily replicable to increase productivity, this could also mean workers spend less time travelling and away from their families, she explains.

Will notes that, in the aviation industry, there are companies Turton Bond works with that are going beyond prefabrication to create their own tailored construction teams, which can be flown into a location and build a development very efficiently. As they are not construction companies they are approaching construction projects with a completely different mindset, he says.

Looking at how these companies from outside the sector are solving problems could help construction to think more innovatively, he says, while embracing new technology could also make the industry more attractive to the younger generation. Kirk agrees: ‘We have to raise awareness among university and college students that construction offers a lifelong career path in a growing sector that is going to be increasingly using digital software and AI.’

The past 12 months have a seen a little more optimism around the continuity of construction workloads. However, market confidence over the ability of the industry to secure the necessary skills and labour varies. Uncertainty over the short-, medium- and long-term pipeline of labour and skills, combined with cost inflation, changing interest-rate regimes and new governments are challenging the financial viability of many construction projects. Access to finance, a consistent value proposition and clear policy incentives can help to address the skills gap and restore progress on projects in the pipeline and under way.

Covering the UK, Europe, Middle East and the Americas, our panel of experts examine the measures and approaches that are proving effective in managing construction projects and skills in the face of ongoing macroeconomic headwinds. The panel also assess the factors that could have a positive impact on the pipeline, particularly those related to labour and skills.