Covid Impact Report Extracts
Covid Impact Report Extracts
Covid-19 had an immediate impact on Construction through the closure of sites and application of social distancing rules. The ongoing impact concerns both the practical implications affecting materials, labour and timing and the pipeline implications of demand for construction work.
This report focuses on:
- the pipeline of future work and factors impacting on construction activity
- the differing impact on each of the main construction sectors
Reporting is based on Barbour ABI project data and ongoing day-by-day research conversations with those working in the construction industry who are immediately impacted including manufacturers, housebuilders, contractors, builders’ merchants, architects and planners.
AMA’s Quarterly Construction Forecast Bulletin provides a long term (5 year) assessment of the market and likely developments. This Covid-19 Impact Report sits alongside to provide a more regularly updated shorter term view on how the economy and sectors are fairing right now and what this means for construction in the immediate future.
We anticipate there will be something around a 20% reduction in construction output across the year, which could be regarded as a good result considering two months of inactivity.
While all sectors of the housing market appear to be benefiting, especially the prime market with home office and outdoor space, there is a regionality to these changes, while ten out of twelve regions have seen house price rises (averaging 1.7%, unusual for August), London prices are down 2%.
Companies are counting the cost of Covid-19 in terms of additional spend on protective equipment and irrecoverable costs of furloughed employees plus other costs relating to changing working practices – all this is reaching millions of pounds on top of standard expenditure, a double whammy alongside loss of revenue as work is put on hold.
Approximately half of construction firms are issuing profit warnings for the first six months of the year and there is widespread expectation that anything like normal profit levels will not be seen until well into next year, a challenging prospect for all but the healthiest of businesses.
With the timeline closing down on the UK’s departure from the EU, the impacts of Brexit on construction are once again a significant focus for the Construction Leadership Council who have launched a Brexit crisis team, the Brexit Working Group, to advise government.
Between May and the end of July, the number of contract awards started to increase however they are still sitting at a smaller number than that of July 2019. It is worth noting there needs to be more than two successive
months growth to say the sector is in recovery.
Stamp Duty Holiday
The implementation of the 9 month Stamp Duty ‘holiday in England - whereby the 0% threshold has been increased from £125k up to £500k – is reported by Zoopla and Rightmove has having driven up estate agents’ enquiries.
Any beneficial impact the ‘holiday’ is having on the private ‘for sale’ market is likely to be offset by the ending of the government’s furlough scheme and lenders mortgage payment ‘holidays’ on 31 October this year.
The level of demand could fall before then due to the sharp decline in the availability of LTV mortgages since March 2020 and an increase in average interest levels
While other sectors have minimal residual projects on hold with most sites back to work, many of the c.£15bn of projects still on hold are in the commercial sector.
Across most of construction the halting of work in response to the pandemic has been a temporary situation. With lockdown easing, pent up demand has been released for houses, educational buildings, industrial projects and infrastructure development so in each of those sectors we are seeing the pipeline reinvigorate.
The majority of schools and further education colleges returned to the “new normal” at the beginning of September and the higher education at the beginning of October. Their challenge is balancing investing in new facilities, with maintaining existing buildings and ensuring that equipment and facilities are available for smooth operation of courses should stricter lockdown measures be necessary.
- The medium-term prospects for education output growth remain optimistic but modest, underpinned by a number of framework programmes
Over the past two years the number of monthly contract awards in the health sector has fluctuated in a range of 20 to 40 contracts. Except for a spike of awards in relation to Nightingale provision in April 2020, contract awards in the health sector have been impacted much less than Other sectors.
Non-Residential - Cont.
Queues have lessened in supermarkets and most goods are available on shelves now but the sector remains shaken. Continued homeworking has devastated the lunchtime economy and accelerated the closure of convenience branches from the major brands including Tesco Metro, who began significant reductions last year.
Businesses are evaluating the cost and benefit of maintaining office facilities along with their ability to do so safely. There is a likelihood of many electing to scale down or transform their approach.
Sport and Leisure
Arts and leisure venues are represented in just six of the contract awards this month, and sporting facilities or gyms in just eight awards demonstrating the dearth of activity currently in these sub sectors as restricted activity has strangled funding sources and uncertainty over what social distancing precautions will be necessary in the future curtails major plans.
Infrastructure and Industry
The current situation for infrastructure construction output remains mixed. The highest profile project to “officially” start in recent weeks has been HS2, although some of the preparatory works did involve the installation of a 2,750 tonne bridge as well as ground clearance activities.
The outlook for the industrial sector remains positive but with key sectors likely to have significantly different experiences. The warehouses and storage sector is likely to see continued interest with increased use of online purchasing and click & collect services will require warehousing and order fulfilment space.