COVID-19: The Impact on the Commercial Construction Industry

Houston Commercial Construction

The construction industry has been uniquely impacted by COVID-19.  While construction is deemed an essential business, the overall economic health of the nation made funding for construction projects uncertain and either delayed projects starting, or in some cases canceled altogether.  Additional factors were supply chain concerns overseas and within the US and the ability to procure materials and equipment promptly to meet the deadlines set forth for the projects. The impact on the commercial construction industry, like many industries, is ongoing and the full impact may not be obvious for years.

 

The Impact

An effective way to understand the impact of COVID-19 on the industry is to look at the data that the Dodge Data and Analytics Commercial Construction Index report has provided.  The Dodge Data and Analytics Commercial Construction Index is an analysis provided by Dodge and published by the United States Chamber of Commerce yearly since 2017.  This report offers insights into the industry, taking into consideration the current state of the economy and ongoing current events such as upcoming changes in the presidential administration and the COVID-19 vaccine.  The most recent publication made it clear how overall business in the construction industry has been impacted by COVID-19.


The index gauges the health of the industry using numbers 0-100, with a higher number indicating a stronger industry.  The health of the industry fell sharply from Q1 to Q2, falling from 74 to 55.  Contractors’ overall confidence in the market’s ability to supply new jobs to meet revenue expectations also fell 26 points between Q1 and Q2.  Delays and cancellations in projects lead to a loss of 1.1 million jobs in March and April.

Despite a sharp downturn initially, the industry held stable from Q2 to Q3 at a 53.  While it still does not align with pre-COVID numbers, new business confidence and revenue expectations saw an increase by single-digit numbers in Q3. 

In April, commercial contractors were reporting that about 40% of their commercial and institutional projects were delayed.  In July, there was some improvement, with 26% of contractors reporting that their projects were still delayed. Expectations for Q1 of 2021 are expected to improve again, with delays being experienced by about 21% of contractors, allowing for some optimism.

According to the Association of General Contractors, in November the industry saw 27,000 new jobs added, but job cancellations and concerns about the PPP Tax Bill are tempering excitement.  In November, Construction unemployment rose to 7,360,000, an increase of 0.4% compared to October. Construction unemployment is the highest it has been since 2012.

As the industry poises for a new year, the residential and specialty trade contractors added 154,000 jobs in November and are reporting they have brought back about 96% of employees that were laid off initially.  Nonresidential construction has increased jobs by 11,900 in November, having recovered 56% of the jobs lost.  The industry unemployment rate in November was 7.3%, compared to 4.4% during the same period in 2019.


The Changing Approach

COVID-19 has not just impacted the pace at which projects can be done and the influx of new projects, but it has also impacted the way many contractors are doing business.  According to Dodge Data and Analytics, about 75% of commercial contractors have changed business processes to allow for social distancing. 67% of commercial construction companies are allowing office employees to work from home, while about 50% of civil office employees are working from home.

In response to the need for social distance[CC1] [RJ2] , 23% of civil contractors and 4% of commercial contractors have invested in technology to make it easier to work remotely, when possible.   Out of those who are currently allowing work to be done remotely, about 35% state that they may allow these policies to continue after the pandemic is behind us.  This signals that many in the industry see the benefits of remote work, although it is not something likely to be the norm in the industry going forward.

Looking Ahead

Many construction contractors are going into 2021 feeling more optimistic than they have since COVID-19. This optimism is due in large part to the reporting that project delays are said to be down to 21%.  While this is still not ideal, it is movement in the right direction.  The knowledge that there will be fewer delays paired with more companies being able to hire back furloughed employees is cause for cautious optimism.

Yet, the struggle is not behind us. Richard Branch, chief economist from Dodge Data Analytics said, “This will not be a copy/paste recovery compared to the aftermath of the Great Recession.” He went on to say, “The pandemic and economic fallout means that opportunities for growth in the construction sector are going to be harder to find.”

Dodge Data reported a 14% decline in construction starts in 2020, although there is a rebound of 4% expected in 2021, bringing starts to about $771 billion in 2021. FMI Corp Principal Jay Bowman has reported that the economy is expected to strengthen in the New Year, but construction spending usually lags by a year and a half to two years stating, “The full effects probably won’t be felt until 2022.”

While the first half of 2021 may be a struggle, Bowman shared some optimism, “I am optimistic that the incoming Biden/Harris administration will get on top of the chaos caused by the end of the moratoriums and deferrals and Congress will come together to provide additional support to the economy and fund a sizeable infrastructure package.” He went on to say, “There is a good chance that the second half [of 2021] will see a return to more normal times, perhaps even busy for designers and contractors.”

While the return to normalcy may not be imminent, insights such as this from industry insiders provide hope.

Axis Builder Wants to Be Your Houston Commercial Construction Partner

As Houston commercial general contractors, Axis Builders has been impacted by COVID-19 and its greater impacts on the industry and economy.  Like many companies, we had to furlough a portion of our team for a time, but we are proud to say by Thanksgiving 2020 we had brought Team Axis back to work. We are optimistic about the recovery of our industry and are anxious to complete ongoing projects and embrace new ones in 2021 and beyond.  Contact us today for all of your commercial and church construction projects!  We would love to partner with you!  


 

 

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