Forecasting construction markets is not an exact science. The construction projects in the pipeline, the key industry drivers and the wider economic environment are known but there is a degree of uncertainty. This has certainly been demonstrated recently with Brexit.
In this blog we take a look at construction forecasts, at how they work and how you can use them to help inform specification strategy.
How UK construction forecasting works:
There are several different ways forecasts are calculated. The majority of forecasters will look at historic data from The Office for National Statistics (ONS), and then take data for the broad economic projections, seasonal trends and announcements of new projects and initiatives such as the Government Construction Pipeline. Generally there will be a forecasting panel who will also apply their experience.
The principal construction forecasters are Experian Economics and The Construction Products Association (CPA). In addition there are also a number of smaller specialists such as Hewes & Associates. These forecasts look several years into the future and are usually updated quarterly.
Remember to take into consideration that forecasts differ depending on their sources of information and attitude to promised initiatives happening.
Other forecasts such as those from Glenigan and Barbour ABI are fact-based measuring changes in planning applications in the construction industry. These are shorter term and tend to only forecast forward into the coming 12 months. Giving a more detailed view of what will happen within the construction industry in the short term.
3 steps for Identifying areas of growth in construction markets
Define the sectors of most importance to your business
Construction industry forecasts should be further dissected to help understand the implications for your business. By doing so these reports can show the potential value of each construction sector to your business. There are two areas that companies need to look at. They should consider which market sectors are growing and also market share.
In each sector consider what proportion of projects have a need for your services. This will help you determine the business value each sector represents for you. Combine this information and you can start to create a forecast for your own business: a forecast that is much more specific than just overall market activity.
Benchmark your market share
Forecasts can help you to reduce uncertainty and benchmark your performance against the sectors you operate in. As construction activity increases, you might see a 3 per cent increase in your business. Is this good or bad? If the market has grown by just 2 per cent it is very good. But if the market has increased by 5 per cent then you are losing share and missing opportunities. Suddenly that 3 per cent increase does not look so good.
To get a sense of the value to you, think about some typical projects. What value does a £1 million project represent to you in each sector? In this way you can create a multiplier that converts the forecast of construction into a forecast of opportunity for your business. Now you can understand what your market share is, if it is going up or down, and what you can expect it to do in the future.
Use forecasts to determine your strategy
Forecasts should play a key part in your business and marketing strategy; for setting budgets and to identify target sectors.
Regularly reviewing construction forecasts can help you to:
- Clearly identify the future demand for construction goods and services
- Identify trends in the construction market ahead of competitors
- Benchmark your performance against the market
- Evaluate market size and opportunities
- Identify key customers
- Evaluate investment opportunities
Competitive Advantage can provide a construction market forecast tailored to the opportunities in your sectors. This exercise is relatively low-cost and can help you anticipate any potential threats and indeed be well placed for new business opportunities.