Post-Covid Construction Recovery – What does it Look Like?
The Covid-19 pandemic has had a huge impact on the construction industry in the UK and beyond. The issues have been widespread and far ranging, from immediate procurement and supply chain challenges, the implementation of further health and safety and social distancing protocols on site, and the halt to planning and inspection procedures.
Earlier this year, the CPA forecasted that construction output in 2020 to fall by 20.6%, with the worst affected sectors including private housing (-33%) and commercial (-29%), and cautioned that changes to the UK economy as a result of the pandemic, waning consumer confidence, and rising unemployment could all impact the speed at which construction sector growth could return to pre-covid rates.
Glenigan’s UK Construction Industry Forecast 2021-22, released in November, recognised the massive shock experienced by the UK construction industry as a result of the pandemic, but predicts a gradual but sustained recovery over the next two years. The report anticipates that by 2022, the value of underlying starts (projects with a value of less than £100m) is forecast to total £49.3 billion, just 3% below 2019 levels, taking into account the pandemic recovery as well as the disruption to trade and growth as a result of Brexit.
It highlights a post-pandemic rise in office refurbishment, online sales boosts to logistics facilities, greater public sector investment in social housing, schools, and civil engineering as major positive impacts on recovery, but cautions the weak average earnings and rising unemployment, and the impact restrictions on retail and leisure will pose challenges. Glenigan also highlight that the course of the pandemic throughout winter 20/21 and the final outcome of the Brexit negotiations will also impact recovery rates, and provides a model for both best and worst case scenarios.
In its latest Autumn Market View, entitled A Long Way Back, Arcadis predicts the return of above-trend inflation for all sectors from 2023 onwards, mainly driven by constraints in the labour market. The report also suggests in that in the short term, construction is likely to become a ‘two-speed’ industry, as a result of predicted high growth rates in infrastructure set against slow growth in the industrial and commercial sector. Similarly to Glenigan, Arcadis highlight the impact of the Covid-19 second wave, combined with the final Brexit agreement on investor confidence as suppressing demand for construction in the near future.
It is clear that whilst there are positive forecasts for the growth of the sector, there are still as yet unknown factors in the shape of the second wave and the Brexit outcome that could significantly derail the recovery process. If the last year has taught us anything, it is that whilst we should hope for the best, we have to adapt to whatever comes next, however unpredictable.