COVID-19’s Effects on the Construction Industry

The Coronavirus’ influence on the construction sector today, tomorrow, and beyond

 

Even though there was no complete shutdown of public construction, the building and engineering sector is still bracing for a significant impact. Asite, an engineering cloud collaboration platform, recently conducted research on how construction will be affected worldwide.

One of the conclusions is that the expected compounded annual growth rate of 2.22% by 2022 in the United States alone will be majorly affected, even with the help the industry might gain from the government.

Changing lives today

A recent article on Globe St. states that the effects of COVID-19 will be apparent in labor shortages. Completion dates will be harder to determine as projects are paused and workers face sickness and quarantine. This will prompt contractors and real estate companies to take a second look at their agreement, rights, and obligations, should the ‘time for completion’ on the contract will not be fulfilled.

Out of all projects, developments under the hardest-hit hospitality industry might take some time before contractors will be able to continue. Hotel development executives are reassessing timelines and Mary Beth Cutshall, the chief development officer at HVMG, said that many developers have decided to put construction on hold.

Cutshall also pointed out the fact that a project is often connected with other industries. If a company is to request approval, processing might be delayed as municipalities have limited opening hours, if they are open at all. PWC hypothesizes that subcontractors are vulnerable to bankruptcy, especially as a site showdown for a couple of weeks can already have a major impact on the business.

Additionally, the supply chain is low. A report by Roads and Bridges shows that 35.3% of respondents are seeing an interruption in the flow of supply of their materials while 37.43% are anticipating an impact.

Moreover, PWC’s report on the engineering and construction sector shows that 71% of the companies surveyed are concerned about the financial impact of the pandemic while 64% fear that a global recession is on the horizon. As of now, most companies are looking at reducing costs instead of pushing forward.

Redefining society’s tomorrow

Despite the pandemic’s detrimental effects on the industry, members of McKinsey’s Engineering, Construction and Building Materials Practice remain positive. Developments may have been forced to shut down for the time being but the demand for construction projects, while not as high as before the pandemic, will continue. For one, there will always be a demand to build new hospitals.

However, this does not mean that the industry will instantly thrive in the near future. The pandemic has had an immense effect on supply and demand and McKinsey predicts that this is a long-term effect that many companies will be grappling with. Longer lockdowns, limited economic activity, and loss of income due to unemployment can impact people’s decision to invest in commercial properties and housing developments.

Deloitte’s Understanding the Sector Impact of COVID-19 report also raises the possibility that internationalization will be less viable. Companies will now be more wary of where to invest and grow their market. Other countries might also increase restrictions toward international businesses, regardless of the industry.

Impacting the beyond

In the same report, Deloitte prompts executives to think if a restructuring is needed to increase liquidity in the new normal. Checking the supply chain for vulnerabilities is also one urgent matter to consider—should companies reconsider where they are sourcing their materials? Contractors and real estate companies might need to adjust their strategies and operations according to the new normal.

For instance, building a safe job site that encourages social distancing and frequent disinfection is expected. Since construction workers are the ones who push the project forward, a surge in Coronavirus-related employee leaves can delay completion dates where the normalization of a skeleton workforce is a possible scenario. Turning to digital tools and remote collaboration will also become the norm. This makes it the perfect opportunity for companies to determine who can work off-site so as not to crowd the job site.

As Coronavirus cases rise, the construction industry is being affected on different fronts. From the interruption in supply and materials, the decrease in demand, to the project development delays, construction companies and contractors are left with no choice but to face the challenge of adapting and reconstructing their usual processes according to the new normal.

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