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This year, geopolitical tensions have combined with ever more extreme environmental incidents exaggerating the already uncertain outlook for worldwide economic activity and supply chains. The construction industry is shaped by the megatrends of digital transformation, urbanisation, as well as markets and geopolitics. The transition to a sustainable built environment also presents significant opportunities, challenges, and legal risks for players in the sector.

In the recent The Year in Review webinar held by World Built Environment Forum, participants share their perceptions of 2022 and expectation for the year ahead.

Challenges and the Way Ahead

The built environment faces several headwinds in 2022. The persistent influence of COVID-19, geopolitical turbulence, supply chain pressure, cost inflation, skills shortages, and a slowdown in the global economic recovery continue to haunt the industry. Some challenges will remain in the year to come.

Simon Durkin, Head of European Research and Strategy at BlackRock Real Assets, categorises challenges into cyclical and structural. He believes central bank policy and also the uncertainty around the interest rate, environments, and the risks that come with it will be one of the biggest headwinds in 2023. And one of the biggest cyclical challenges is to what extent the occupier market is impacted.

"I think one of the risks for real estate is not just around rising rates and how much further they might have to go and the impacts that have on property lending. And it also has an impact on the occupier. Now we cannot have a recession without that being an impact on the occupier markets."

As for structural challenges, he believes one of the biggest in urban areas is the post-pandemic work-from-home, flexible working balance. The less demand for office space will be a challenge. It will change the market, and the industry will need a new playbook.

Another issue is that environmental and sustainability factors are becoming more imminent. But for him, more importantly, the industry should not overlook the societal role that real estate has to play; the societal factors should gain equal attention as environmental ones.

He believes once the industry goes down on the downturn in the cycle, very quickly, it will find itself in the upturn. And the window of opportunity will probably start to open next year.

Uncertainty generally leads to more disputes that will have huge impacts on time and money for the global economy, construction industry, and project stakeholders. Toby Hunt, Partner, and Head of Europe at HKA cited the 2022 Fifth Annual CRUX Insight Report, saying the change in scope is the top-ranking cause of claims and disputes in most regions. Closely related, the high prevalence of design conflicts can be attributed, and also contract interpretation issues.

To reduce claims and disputes in 2023, he believes market engagement with supply chains for large new projects is essential. "Knowing not only your own internal risks but also to have assessed those risks from the firms that you contract with in a regular basis, I think firms will be in a much better position to deal with the issues as they arise and as well as the consequences which come from that."