Warren Buffet once said, “Risk comes from not knowing what you are doing.” To maximize revenue and build sustainability, companies must align current operations with the dynamic changes coming in 2023. So, how do companies ensure that they know what they are doing? “Future sustainability depends on a company’s ability to seize opportunities and overcome challenges,” said John Bibeau, Partner and head of PKF Mueller’s construction industry team. PKF Mueller concludes 2022 with the insights and outlooks that help equip construction companies for 2023.
Opportunities To Vault into 2023
While there is deafening chatter about current recessionary indicators, there are beacons of light for the construction industry. To the extent construction companies can capitalize on areas of growth, they can position themselves for increased revenue and decreased costs:
- Capitalize on Tax Incentives and Deductions to Cut Costs: PKF Mueller foresees increases in demand for construction services and products. With the enactment of the Inflation Reduction Act of 2022, the Federal Government is incentivizing the use of “energy-efficient” products. These incentives are expected to increase demand for energy-efficient construction – such as solar and electric. IRC Section 179D continues to offer accelerated tax deductions for energy-efficient lighting, A/C and ventilation.
- Multifamily Growth: As the economic recession intensifies and struggling homeowners are forced out of their properties, the demand for multifamily housing will increase. According to CBRE, the multifamily sector is expected to perform particularly well in 2023, maintaining occupancy rates above 95%. The increase in demand for multifamily properties will consequently create additional growth for the construction sector.
However, Challenges Also Abound
While there are opportunities, construction constituents must also keep a close eye on the challenges that 2023 will bring. These include:
- Supply Chain Issues: PKF expects that supply chain issues will continue into 2023 due to labor shortages and global inventory challenges. Companies with shaky supply chains will suffer setbacks that prevent them from meeting customer demands. PKF Mueller recommends identifying and implementing technology that optimizes supply chains.
- Increasing Interest Rates: As a result of increasing interest rates, construction companies can expect to pay more for borrowing activities – while also facing increasing inventory costs. Increasing interest rates incite competitive pressure and impose risks to the viability of companies that do not have sufficient cash reserves.
- Labor Shortages: The trend in labor shortages is expected to continue into 2023. An aging construction sector workforce accompanied by fierce competition for labor from other industries will make it more challenging to optimize workforce numbers and wages.
The construction industry’s overall trajectory in 2023 includes viable opportunities that can propel revenue – but the new year will also come with challenges that can hinder success. With this mix, it will be the companies that know how to capitalize on opportunities and prepare and navigate challenges that will endure and thrive in 2023.
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