COVID-19 has caused a sharp decrease in construction activity. The extent of the problem is best summarized by the Architecture Billings Index (ABI), a leading indicator for construction industry trends. In April this year, the ABI fell to the lowest level it has ever reached in its 20-year history.
Why has the coronavirus had such a negative effect on construction industry trends?
It’s not difficult to see the answer. Many states have issued stay-at-home orders to construction workers. And some construction sites that remained open were affected by supply disruptions.
But is it all doom and gloom for the construction industry?
Let’s find out. But before we begin analyzing the impact that COVID-19 has had on construction industry trends, we’ll spend a moment reviewing the state of the industry in 2019.
The construction industry before the pandemic
At the end of last year, Constructor Magazine, the flagship publication of the Associated General Contractors of America, predicted that construction companies would continue to prosper in 2020. A survey that they conducted revealed:
- 76 percent of construction companies planned to increase headcount in 2020
- 46 percent intended to boost spending on information technology
- The segments that were expected to grow strongly were water/sewer, bridge/highway, K-12 school, hospitals, and transportation
Stephan E. Sandherr, CEO of AGC of America, pointed out that, “Contractors are very optimistic about demand for construction in 2020.”
But of course, all that changed when the coronavirus pandemic swept across the country.
COVID-19: Construction industry trends in 2020
The spread of COVID-19 had an unprecedented effect on the industry. Confidence levels among construction industry leaders plummeted in March when the extent of the coronavirus pandemic started becoming apparent.
On April 23, the Associated Builders and Contractors (ABC), a national industry trade association representing more than 21,000 members, released its Construction Confidence Index, based on a survey conducted in the period from March 20 to 31. The survey’s results were the worst ever recorded by the association.
ABC members predicted that there would be a fall in sales, profit margins, and staffing levels because of the coronavirus.
The reasons behind this pessimism are not hard to see. They fall into several categories, all of which are related to COVID-19:
Health of employees
Construction workers could be exposed to the virus if they don’t take the required precautions. The Occupational Safety and Health Administration (OSHA), an agency of the United States Department of Labor tasked with ensuring the safety of workers, has issued a special set of guidelines for construction workers.
In a recent survey, contractors were asked how the coronavirus has affected their work. As many as 70 percent said that anxiety among workers was a critical issue.
Changing government regulations
In many states, the focus is on protecting the population from the virus rather than worrying about the economic impact of closing down construction sites. Consequently, a state may issue “stay-at-home” orders or “safer-at-home” orders to control the spread of COVID-19. Constantly changing rules could affect the availability of workers and lead to delays in project completion.
What are the current rules in different states?
Here’s a useful resource — 50-State Survey: COVID-19 Impact on Construction Services — Government Orders and Guidelines. The information on this page is updated weekly and includes guidance from the federal government.
Availability of materials
A large percentage of construction raw materials are imported into the country. China supplies about 30 percent of U.S. requirements. Canada and Mexico are also crucial suppliers. Any disruption in imports could prove to be a problem.
How serious is the issue?
It’s hard to tell at this stage. According to Joe Natarelli, national construction industry leader at Marcum LLP, an advisory firm, “My gut tells me we’re going to see higher prices and projects canceled although I can’t point to the extent of it.”
Fortunately, the outlook is changing for the better. A report titled, Construction Activity Returns to Pre-Pandemic Levels in Parts of U.S., points out:
- Many construction firms are seeing a return to normalcy.
- Hiring has increased in certain areas.
- However, some construction companies are experiencing labor shortages and supply chain issues.
The report mentioned above, based on a survey conducted by the Associated General Contractors of America, also points out that 22 percent of construction firms require “more funding for loan programs to maintain cash flows.”
If your construction company requires funds, there’s still time to apply for the SBA Paycheck Protection Program (PPP). The original deadline of June 30, 2020, has been extended to August 8, 2020.
You can also apply to Camino Financial for a small business loan. Our online approval procedure is quick and enables us to advance sums up to $400,000 to your business. Our small business loan specialists live by our motto, “No business left behind.”
What lies ahead: Construction industry trends in 2021 and beyond
The data suggest that construction industry trends are changing for the better.
In June 2020, the construction sector added 158,000 jobs.
So, it seems that the construction sector will gradually emerge from the negative impact of COVID-19.
But what will the construction industry trends be in 2021 and beyond?
Will it be back to business as usual?
Or will there be any changes?
Here are some of the construction industry trends that you could expect to see:
- Modular construction could get a boost: This process involves constructing modules off-site and assembling them at the destination. It cuts down construction time drastically. Marriott International plans to put up a 360-foot-tall modular hotel in New York City. The time to complete the construction? Only 90 days.
- Construction robotics will grow: Robots can be used to build walls, operate equipment, and conduct surveillance and inspection on construction sites. It’s highly likely that construction companies will place greater reliance on automation in the coming years.
- There will be a shortage of workers: One of the defining construction industry trends will be the scarcity of workforce. A survey conducted before the pandemic hit the U.S. revealed that 80 percent of construction firms reported that they found it challenging to fill hourly and craft positions.
The construction industry is probably out of the woods. As the impact of COVID-19 recedes, the coming months and years could see a return to normalcy.
If you run a construction firm, it’s essential to focus on two critical areas.
- Ensure you have the cash to see you through these difficult times.
- Try to retain your best talent so that you have the human resources to take up new jobs.
At Camino Financial, we endeavor to help all business owners in all industries. We provide small business owners like you with regular updates on topics of interest. This includes tips and resources to help you increase your sales and boost your profitability.
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