6 trends that will shape the building environment industry

Guide

Two experts give their opinion on what your business faces in the next three-to-five years

Part of running a successful built environment industry business means being able to read, and respond to, the trends that affect you. Two experts, Roger Collins-Woolcock, Director of Collins & Woolcock, and Danny Chung, National Head of the Built Environment with Macquarie Business Banking, give their opinion on what will influence the way your business operates in the short-to medium term.


1. The sustained construction boom in NSW and Victoria

The built environment industry shares a symbiotic relationship with the construction industry. As any consultant working in the space knows only too well, that means it tends to be subject to a cycle of boom and bust.
 
Roger Collins-Woolcock says that right now we are in a prolonged boom phase of that cycle, especially in NSW and Victoria. He expects the current conditions to continue for at least the next three-to-five years.

“We are seeing the fulfilment of pent-up demand for property and construction of all kinds, particularly in NSW and particularly from the state government,” he explains. “There are many infrastructure construction projects still in the planning phase or that have only just commenced.”

This view is supported by Chung, who points to the Sydney WestConnex, a project anticipated to run until 2023, as a project likely to keep many industry professionals busy for some time to come.


2. Larger projects and larger contracts

One of the most notable effects of the NSW and Victorian Governments’ appetite for infrastructure spending, is that the sheer scale of construction projects is increasing.

The flow-on effects of large projects are tremendous for all participants in the industry.

“Five-to-ten years ago, a one billion dollar project was an enormous one.” Collins-Woolcock says. “That’s not the case anymore.”

In fact, according to Macquarie Wealth Management research, the federal and state governments plan to spend $237 billion on major infrastructure projects over the next four years. However, this should rise to as much as $323 billion when projects that haven’t yet been fully funded are included.

This includes six projects of $10 billion or more and no less than 30 of more than $1 billion.

Leading the pack cost-wise should be NSW’s planned F6 corridor expansion, which is estimated to cost $18 billion. This is followed by Sydney’s MetroWest rail link at $15 billion and the Western Harbour Tunnel and Beaches Link at $14 billion. Meanwhile, the Melbourne to Brisbane Rail Link is estimated to cost $10.7 billion by the time it is completed

Chung notes that the size of these projects has been matched by growth and consolidation at the top end of the market. It has also helped encourage the big four accounting firms into the space where they have taken over some of the peripheral work traditionally performed by some built environment consultants.

But the arrival of larger businesses at the top end of the market doesn’t herald bad news for built environment industry consultants, especially those further down the chain. Instead, Collins-Woolcock says the flow-on effects of large projects are tremendous for all participants in the industry.

Cheap labour is combining with technology to bring Australian and overseas-based labour together.

“You don’t have to be a global company to be benefiting from the big projects going on right now,” he explains. “There is plenty of specialist work for the smaller firms too.”


3. A greater emphasis on risk

But while smaller consultancies will increasingly be given the chance to sink their teeth into large projects, Collins-Woolcock says that it comes with a price - especially around potential liability.  To this end, he has noticed a definite trend of principals and head contractors creating agreements that push risk further down the chain.

“There is a degree of contractual complexity in projects that previously didn’t exist,” he explains. “And smaller contractors are having to wear the risk that would once have been the responsibility of much larger companies.”

He predicts the result of this - as in many professional services – will be a rising cost of doing business, based on higher insurance costs and legal fees.


4. An acute shortage of skilled labour

As with any booming industry, the ability to attract and retain quality talent is currently a serious challenge for many consultants in the built environment industry, no matter whether they are architects, engineers, town planners or other professionals.

Collins-Woolcock says this skill shortage is being compounded by changes to the skilled migrant - or section 457 Visa regime - which will make it increasingly difficult for smaller employers to import the talent they need. For this reason, he says that creating a culture that rewards and engages quality employees is becoming more important than ever.

“Given how hard it will be to attract and retain the best people, every consultancy in the built environment space should be making culture one of their main priorities right now,” he says.


5. The rise and rise of offshoring

At the same time as a labour shortage forces the price of skilled local labour higher, globalisation keeps making cheaper overseas labour more accessible. While that won’t necessarily threaten jobs in the Australian sector, it will continue to drive down the costs of production.

Chung notes that where this trend is becoming particularly potent is where cheap labour is combining with technology to bring Australian and overseas-based labour together. For instance, 10 years ago designing the preliminary stage information for a large complex project may have taken many weeks. Today, with the technology and utilising offshore labour costs, this could take as little as a week.

Both Chung and Collins-Woolcock see the trend towards outsourcing gathering pace so that it becomes the standard, even for smaller practices, to send many more administrative-based functions offshore and to use technology to streamline their work. 

There is far more opportunity than threat on the horizon for good local built environment consultants.

Chung also believes that practices who choose not to offshore some of their functions, especially administrative ones, could become noticeably less cost-competitive than their rivals and may consequently face the prospect of less work or tighter margins.


6. A big role for big data

It is not only in the execution phase that technology is reshaping the way work is done. Chung observes that it is redefining the creative process as well, particularly when it comes to analysing and applying data.

“Information is increasingly being used to predict how people will use a space and work within an environment,” he says. “It is incredibly valuable when it comes to better building and urban design.”

Chung also notes that while technology such as Building Information Modelling (BIM) was previously the domain of large businesses and large projects, businesses of all sizes are now using it to streamline their decision-making processes and influence the shape of projects.

Chung says that, for this reason, staying competitive will mean having the in-house capacity to use this kind of software. That, in turn, will have flow-on effects when it comes to hiring and training staff.


And finally…

That said, of all the issues that will impact on built environment businesses over the short-to-medium term, Chung believes it is staff retention that looms largest. For this reason, he also says it is loss of quality staff that has the most potential to be a disruptive influence on firms.

Meanwhile, Collins-Woolcock observes that, while the built environment industry is changing, it won’t necessarily suffer the same kind of wholesale disruption that has affected other professional services industries such as accounting and law.

Instead, he suggests that there is far more opportunity than threat on the horizon for good local built environment consultants.

“The outlook for our industry in the near future is overwhelmingly positive and every current negative trend is surmountable,” he concludes.

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Unless stated otherwise, this material has been prepared by Macquarie Bank Limited ABN 46 008 583 542 AFSL & Australian Credit Licence 237502 ("Macquarie") for general discussion purposes only, without taking into account your personal objectives, financial situation or needs. Before acting on this general information, you must consider its appropriateness having regard to your own objectives, financial situation and needs. The information provided is not intended to replace or serve as a substitute for any accounting, tax or other professional advice, consultation or service.