In August 2024, McKinsey & Company published an insightful report highlighting the critical challenges and opportunities facing the construction industry. The construction industry stands at a pivotal crossroads. As one of the largest and most influential sectors globally, its role in shaping a sustainable future cannot be overstated. Beyond meeting economic and societal needs, such as housing, infrastructure, and commercial spaces, the industry has a unique opportunity to drive forward net-zero goals by 2050. This mission will require a monumental increase in productivity—a challenge that the industry has historically struggled to meet.
The Growing Demand for Construction
Global construction spending is projected to skyrocket from $13 trillion in 2023 to $22 trillion by 2040, driven by the urgent need for infrastructure that supports both economic growth and environmental sustainability. This expansion represents a compounded annual growth rate (CAGR) of 3.2 percent, a pace that matches the rapid growth seen in China over the past two decades. However, outside of China, the construction industry will need to double its growth rate to meet this demand. The stakes are high, as any shortfall in construction output could hinder progress toward critical societal goals, including affordable housing and net-zero emissions. For a deeper dive into these projections, you can refer to the detailed report by McKinsey & Company here.
Source: McKinsey analysis based on data from IHS Markit and McKinsey Global Institute
A Persistent Productivity Challenge
Despite technological advancements and efforts by individual companies, the construction industry has seen little improvement in productivity over the past two decades. While productivity in sectors like manufacturing has surged, construction productivity has lagged, improving by only 10 percent between 2000 and 2022. In fact, in the last few years, global construction productivity has even declined.
The industry's struggle with productivity is not just a modern challenge—it is a chronic issue. The reasons are multifaceted, including a lack of standardization, slow adoption of technology, and a tendency to offer bespoke solutions rather than embracing modular construction practices. Moreover, the labor market is tightening, with shortages in critical roles such as engineers, craft workers, and project managers, further exacerbating the productivity crisis.
The Risk of Falling Short
If the construction industry continues on its current trajectory, it may fall short of global demand by as much as $40 trillion by 2040. This shortfall could have far-reaching consequences, delaying the net-zero transition, slowing economic growth, and making it difficult for countries to meet infrastructure and housing needs.
Moving Forward: A Call to Action
Improving productivity is no longer optional—it is essential. For construction companies, this is not just about survival but about seizing a competitive advantage. Companies that can deliver projects more efficiently will be better positioned to capture a larger share of the growing market, improve margins, and enhance their credibility.
To achieve this, the industry must go beyond foundational measures and embrace transformative approaches. These include adopting advanced project management techniques that focus on production rates, nurturing supplier ecosystems to improve consistency across projects, and upskilling the workforce to meet the demands of increasingly complex projects. Additionally, the industry must scale successful initiatives across entire project portfolios and invest in technologies that have a direct impact on productivity, such as generative AI.
The road ahead for the construction industry is challenging but filled with potential. By addressing the productivity challenge head-on, the industry can not only meet the demands of the future but also play a crucial role in building a more sustainable world. At Jengai, we are committed to supporting the construction industry through innovative solutions that enhance productivity and drive progress. Together, we can help the industry climb out of its productivity rut and build a brighter future.