Should you invest in the construction industry? The role of labor shortages & costs

The impact of workforce shortages on project pipelines

Workforce shortages remain one of the most pressing challenges in the construction industry. A 2024 survey found that 75% of employers across 21 European countries reported difficulties in finding workers with the right skills, a significant increase from 42% in 2018. These shortages are especially severe in trades like masonry, carpentry, and electrical work—roles that are critical to timely project execution but increasingly difficult to staff as older workers retire and fewer new entrants join the field.

The labour gap is structural, not cyclical. The construction sector has struggled to replenish skill levels as the industry evolves toward more technology-intensive processes. Vocational training pipelines haven’t kept pace with industry needs, and policy changes across several EU countries have tightened access to migrant labour that previously helped balance domestic shortfalls.

These labour shortages are now affecting both the cost and predictability of project deliveries. Delays are increasingly attributed not to material issues or planning approvals but to a lack of on-site workers. In response, some developers are scaling down project sizes, extending delivery timelines, or shifting toward offsite construction methods. In high-demand regions, construction timelines are extending by several months, leading to increased financing and holding costs.

For investors, these dynamics introduce execution risks that are difficult to quantify and mitigate. Companies with reliable subcontractor networks, in-house training programmes, or early investments in automation are better positioned to manage labour constraints. Nonetheless, the shortage of skilled workers is likely to remain a structural headwind, influencing margins, timelines, and capital allocation across the sector.

Construction automation and robotics: A partial solution

Construction remains one of the least automated sectors, despite growing pressure to improve productivity and manage rising labour costs. While manufacturing has embraced robotics at scale, the construction industry continues to rely heavily on manual work.

Automation in construction includes technologies like autonomous machinery, robotic bricklaying, drone surveying, and 3D concrete printing. Adoption is gradually growing, particularly in large infrastructure projects across Europe, where pilot programmes have shortened timelines and reduced waste. However, most gains are still limited to early-stage activities, such as grading or excavation rather than specialised trades.

While autonomous construction robots can help relieve pressure on some labour-intensive tasks, they don’t replace skilled workers. Instead, they shift human roles toward supervision and precision tasks. Barriers like capital intensity and integration costs continue to limit adoption, especially among smaller firms.

Overall, automation is now becoming a differentiator. Firms investing in robotics and digital workflows tend to manage timelines more reliably and absorb fewer cost overruns. While not a complete fix for labour shortages, automation offers a strategic advantage in a tight labour market.

Is investing in construction companies a smart move today?

Investing in construction companies remains a viable strategy, but success depends on identifying companies that can manage current industry challenges. Investor interest is shifting away from broad sector exposure and toward firms with adaptive strategies and strong balance sheets.

Key traits investors are now prioritising include:

• Diversified revenue streams. Companies working across multiple segments, such as infrastructure, logistics, and retrofitting, often face less volatility than those relying solely on speculative residential developments.
• Strong cost management. In an environment of fluctuating material prices, firms with effective procurement strategies and lean operational models are better positioned to protect margins.
• Robust project pipelines. A well-structured backlog, especially one anchored in public infrastructure or ESG-aligned development, provides visibility into future cash flows.
• Operational resilience. Firms with strong subcontractor networks, prequalified suppliers, and digital workflows tend to handle disruption more efficiently.
• Selective exposure to new construction. While new builds remain attractive in specific markets, overexposure in overheated segments can raise downside risks. Investors are increasingly cautious, favouring companies that balance new construction with renovation and infrastructure projects.

In summary, new construction can still be a good investment when approached through companies equipped to manage execution risks effectively.

Real estate development and construction: Where they intersect

Construction and real estate development are closely linked but follow different dynamics. While developers focus on land acquisition, planning, and market demand, construction firms are responsible for executing projects efficiently, translating design and financing into physical delivery. Their performance is deeply influenced by the timing, scope, and location of development cycles.

The real estate boom of 2020-22, fuelled by low interest rates and surging demand for new housing and logistics assets, boosted construction activity across many markets. However, rising borrowing costs, inflation, and tighter planning regulations have cooled momentum. As a result, construction pipelines are narrowing in some areas while shifting in others, particularly toward public infrastructure, energy-efficient retrofitting, and mixed-use urban projects.

This shift reinforces the need to evaluate construction exposure not simply through property prices but through the depth and durability of future demand. Projects tied to urbanisation, decarbonisation mandates, and logistics infrastructure may offer more stable returns than cyclical residential development. Construction companies embedded in these strategic corridors tend to provide more predictable earnings, especially in regions where housing policy and government-led investment are driving activity.

Environmental effects and risks for construction investors

Buildings account for approximately 42% of the EU’s total energy consumption and around 35% of its greenhouse gas emissions, making them the single largest energy-consuming sector in the region. While emissions from energy use in buildings have declined by approximately 34% between 2005 and 2022, mainly due to improved energy efficiency and the decarbonisation of heating systems, the construction sector remains under sustained scrutiny from regulators, policymakers, and institutional investors. These metrics underscore the urgency for the industry to align with EU climate goals and sustainable finance frameworks.

New standards and policies, such as the EU Taxonomy, the Energy Performance of Buildings Directive (EPBD), and stricter ESG disclosure requirements, are reshaping project evaluation criteria. Projects that fail to align with these criteria may face higher financing costs, reputational risks, or exclusion from sustainable finance instruments. In response, developers and contractors are prioritising low-carbon materials, circular construction practices, and resource-efficient designs.

Environmental risks also extend beyond compliance. Climate-related factors such as weather volatility, water scarcity, and flooding are impacting site feasibility and construction schedules. As a result, insurance costs have risen, and project risk assessments increasingly include physical climate risk modelling. Companies with poor environmental strategies often face tighter margins, project delays, and limited investor interest.

In the current landscape, assessing environmental exposure has become a fundamental requirement for construction firms. Companies that can meet new standards while maintaining cost discipline are more likely to secure project opportunities and align with capital providers focused on sustainability.

Construction investment demands selectivity and foresight

Construction continues to support critical economic functions, from housing to infrastructure, but the sector no longer behaves predictably. Projects now face higher execution risks due to labour shortages, cost volatility, and tightening regulations. These disruptions are reshaping how the industry delivers and scales.

Investment outcomes increasingly depend on how well a company can plan, adapt, and deliver within these constraints. Firms that maintain delivery standards, control costs, and align with new environmental benchmarks tend to retain pricing power and access to capital. Overall, construction remains a viable sector for long-term capital, but broad exposure is no longer sufficient; being selective is essential.