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."

Technology Outlook and Barriers

Better adoption of digital solutions for the built environment will help solve challenges.

RICS President Clement Lau said, "technology has long been transforming our lives, and this year was no exception." He has witnessed, in the past year, increasing discussions about how digital twins and robots can deliver better and more predictable results in construction and interventions on the value and application of data, AI, and automated valuation models for delivering efficiencies and improved outcomes in the built environment.

Glodon has also put great effort into developing digital construction technology with a focus on digital twins in 2022. In the Digital Twins from Design to Handover of Constructed Assets white paper co-published with RICS, Glodon intend to extend the idea of digital twins upstream from the currently popular view of using digital twins for asset and facility management to the development, deployment, and use of digital twins in the asset whole life cycle from design, construction, and handover. "The white paper provides a perfect opportunity for the professional of the built environment to have more clarity on that regard and have the possibility to learn from others," said Pierpaolo Franco, Vice President - International Business Development at Glodon.

The industry needs to increase the adoption of the use of digital twins, but there are still barriers. He said one of the major challenges is a change of management system. For an industry that is still plagued by a great deal of silo operation, a thorough mindset change is necessary. Because digital twin is not a piece of software, it is a very complex platform that integrates different elements and data from various resources that need to be analysed and provide people insight. Therefore there is a need to upskill the workforce with new sets of competence to bring a cultural change.

For him, other issues include the front cost that needs to be considered and a balance that still does not reach between demand and financial support from the client. A lack of a unified standard and clarity about what kind of data needs to be collected can also cause problems.

Clement Lau also suggests there is a need for governance challenges along with transformative technologies and clear ethical frameworks for professionals to ensure that proliferating data does not lead to proliferating unfairness or widening inequalities.

The Focus on Sustainability

Kisa Zehra, the Sustainability Analyst at RICS, believes "sustainability in itself in the building and construction sector is a huge challenge."

She said the demand for green buildings had risen in the construction sector. Still, the construction sector represented more challenges rather than improvement. As suggested in the 2022 RICS Sustainability Report, one of the major challenges by the construction sector was the measurement and assessment of carbon. To her disappointment, there seems to be very little progress in this area across the industry.

According to her, the lack of established standards, tools, guidance, and databases were some of the barriers preventing the sector from assessing its carbon and reducing it. High cost and the low availability of low-carbon materials also contribute to the situation.

"I think the biggest challenge is getting that behavioural change across the sector. So creating that shift across the sector will probably be the biggest issue. We also need to concentrate on issues such as efficiency and waste management. … The concept of efficiency and cycle economy practices need to be embedded within our sector for us to be on a path to being more sustainable." And the industry would need support. Government support, incentives, and subsidies will be really important in pushing the sector and creating that shift across the industry. To make this happen, the government will need to collaborate with the industry to understand the key barriers and the key issues that affect the sector, so the right policies can be set in the response.?

Speaking of the current situation, Pierpaolo Franco said there is a great deal of lack of standards and ways of measuring the building beyond its normal performance. Current qualifications and standards are not based really on the performance, out of the building's real performance but based upon a number of checklists of the building.?

Although the industry is not currently doing well, "there are a lot of financial institutions that are expected to invest and to finance projects do have higher expectations when it comes to sustainability and measures taken by the supply chain and doing that. And I think as that trickles down, those companies in the supply chain that cut investment in this area will necessarily suffer and find it harder to compete and to become included in projects globally," said Toby Hunt.

Just as Clement Lau said, "perhaps the quickest conceptual change I have witnessed in my lifetime is how concern for the environment has become a core driver of business and policy making."

Simon Durkin added the E and S in the ESG are now at the top of the agenda for his investors because they are essential to liquidity and assets that don't meet the requisite standards locally will not have liquidity. He believes consistent mandating is needed in the future of talents to provide their landlords with carbon energy-related carbon usage data and information to help work collaboratively to improve the carbon footprints of all buildings.

For future development, Pierpaolo Franco added that "to be fully sustainable, we need to think about our buildings from the design, bringing everything together, thinking about how the building will operate, how the cities will operate and how better will be, the liveability of this building and cities.”