Amid rising interest rates, fluctuating material costs, and persistent supply chain disruptions, the real estate and construction industry is entering a year of heightened uncertainty. These challenges, while formidable, also present opportunities for innovation and growth.
Despite this uncertainty, confidence among industry leaders remains strong. Our latest survey reveals that more than three-quarters (77%) of respondents are optimistic about their businesses' growth prospects this year—a figure that, while encouraging, shows a slight dip compared to the previous year.
However, when we widen the lens to the global economy, that confidence begins to waver. Only 26% of industry leaders expect global economic growth to increase in the next twelve months, while 20% foresee a contraction. Still, in certain regions, including India, South America, the Middle East, and Canada, optimism runs higher.
This stark divide in growth expectations indicates a key reality for 2025: growth in the sector will be uneven, and success will depend on the ability to navigate an increasingly complex landscape.
Business leaders are citing a host of risks threatening growth and stability, with economic uncertainty topping the list. A striking 83% of respondents reported it as their primary concern—the highest level recorded in five years.
Geopolitical instability ranks a close second, with 74% of respondents worried about the cascading effects of global conflicts.
Rising resource costs rank as the third most significant concern, with 71% of leaders struggling with the escalating raw materials and energy expenses. This is hardly unexpected, as ongoing inflation and supply chain disruptions have consistently plagued the sector, driving operational costs and narrowing profit margins.
Cybersecurity threats have emerged as the fastest-growing risk, cited by 67% of respondents. While this figure is slightly lower compared to the global cohort of business leaders, it represents a notable rise of more than 25 percentage points over the past five years, reflecting the sector's growing reliance on technology and digital infrastructure.
In the face of these risks, real estate and construction leaders prioritise operational efficiency as a critical lever for resilience and growth. Seventy-two per cent of respondents plan to streamline their operations in the next 12 months, while more than half are focused on cost reduction and investments in their employees.
More than half of respondents aim to revamp organisational structures, while 50% are streamlining processes to eliminate inefficiencies.
Technology upgrades are also prominently featured on the agenda, with 40% investing in systems that enhance data analytics and operational agility. For many, AI is the linchpin of these efforts, with nearly 60% of respondents identifying AI as the most important technology for the next five years.
Only 9% of leaders believe their current business model is operating at optimal efficiency, while the remaining 91% see room for improvement.
While its application in the sector is still evolving, leaders are cautiously integrating AI to enhance their operating models. Notably, 40% of respondents prioritise investments in data analytics, with 57% actively deploying AI to support this effort.
A European CEO highlights AI's role in analysing data drive asset and acquisition strategies, noting its positive impact on profit margins. Beyond analytics, more than a third (36%) intend to use AI to enhance business agility, 34% aim to upgrade technology systems, and 20% are leveraging it to refine organisational structures.
A CEO from the Asia-Pacific region emphasised how tools like ChatGPT and other new marketing technologies have played a crucial role in transforming their business models.
Additionally, two leaders from North America and LATAM highlighted how AI has enhanced their marketing efforts, with one citing the "speed in generating marketing content and data analysis," and the other noting that "analytics of marketing has allowed us to focus our strategy on the right target audience."
Aware that efficiency alone will not solve all the sector's challenges, industry leaders are increasingly focused on workforce performance, with nearly 60% of respondents agreeing that productivity hinges on individual circumstances. Alarmingly, 7% report disengaged employees who frequently miss targets—a trend that could hinder growth.
Responding to these challenges, leaders are intensifying efforts to empower and engage their workforce. Over half of respondents plan to strengthen training and development initiatives this year, while 50% work to improve company culture and employee engagement.
AI also has a role to play here, albeit a more limited one. Twenty-seven per cent of respondents are exploring AI-driven tools to enhance training and upskilling efforts. Still, compared to other industries, the sector lags in adopting AI for workforce transformation—a gap that could widen if not addressed.
Investments in rewards and remuneration are also on the rise, with 42% of leaders committing to enhanced compensation packages. Still, the challenges of succession planning and career development remain. As a result, almost half of survey respondents prioritise these areas, recognising that nurturing future leaders is essential for long-term success.
Despite focusing on efficiency and workforce development, the real estate and construction sector continues to lag in innovation. Just 16% of respondents see themselves as "successful innovators". Rooted in the industry's traditionally risk-averse nature, barriers to innovation abound.
The adoption of AI in areas such as recruitment, customer analytics, and research and development remains low, hindering the sector's ability to unlock new revenue streams. While AI is being adopted, its direct impact on profitability is still unclear or not easily measurable for some businesses. For instance, when asked which AI application has most positively impacted profitability, a CEO of a family-owned European firm responded, "Good question - I would not know."
Almost a third of respondents (32%) admit that fostering innovation within their organisations is challenging.
As 2025 unfolds, the real estate and construction leaders will need to strike a delicate balance: managing immediate risks while laying the groundwork for long-term transformation.
Leaders are shifting focus, with AI emerging as a top priority alongside cost reduction and investment in employees. However, technology still plays a minimal role in these transformation plans as innovation remains a significant challenge, and low adoption of AI further compounds the issue.
Despite the hurdles ahead, the sector has reasons for optimism. With a clear-eyed approach to operational efficiency, workforce empowerment and innovation, leaders can position their businesses for success in 2025 and beyond.
At HLB, we partner with real estate and construction businesses to tackle these challenges head-on. From AI applications to workforce transformation strategies, our team members with deep industry expertise help companies navigate uncertainty and seize new opportunities. Trust HLB to guide you through 2025.
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