Construction, Statistics & the Economy – Post-Lockdown – What Does it Mean for Construction?

Martin Hewes, Managing Director of Hewes Associates is one of the industry’s foremost forecasters, he publishes Construction Outlook which provides three years of forecast data for Housing, Infrastructure, Public non-Housing, Industrial, Commercial, Repair & Maintenance. Here he gives his view on Post-Lockdown and what it means for Construction.

 

What do we know to date?
In terms of hard data, very little, although it seems the economy will contract by around 15% at least in 2020.

 

OK, what is your view concerning the outlook for 2020
The industry is set to contract steeply – our initial analysis points to a 25% contraction – although the scale of decline rests with the duration of lockdown.

 

What do you assume concerning lockdown duration?
Lockdown will continue into May.  We assume some form of phased removal beyond then, lasting into the summer.  Any form of social distancing in the workplace implies reduced productivity and output volumes.  In short, a gradual return to ‘normal’ activity seems far more likely than a quick bounce-back.

 

What can you tell us about the major markets?
Housing seems set for a difficult time.  Buyers will be reluctant to enter the market due to concerns over job security, and some will have eaten into deposits to support spending power whilst under furlough.  Housing output will fall by between 30%-40% this year.

 

But the nation needs more houses!
Indeed, although there is less certainty over peoples’ ability to afford houses, and builders’ incentive to deliver.  The nation faces an historic decline in GDP: it would be odd to imagine anything other than weaker pricing against such a background.  That renders housing more affordable, but consumers will be financially restrained, and furthermore, builders tend to reduce output when prices fall.

 

What about infrastructure?
This offers better prospects beyond 2020.  The Government will be eager to pump funding into projects to propel the economy.  Meanwhile, along with all public sector work, infrastructure is less subject to the carnage underway across much of the private sector.

 

Talking about the private sector, what is your thinking concerning commercial building?
The lockdown is not only causing immediate financial damage across commercial sectors, but it is also likely causing economic behaviour to change in ways that undermine established business models.  Bricks and mortar retail, already under extreme pressure, faces much reduced investment, private education, greatly reliant upon overseas students, has little idea of when and how overseas students will return.  Homeworking is unlikely to become mainstream, even so, it will probably impact office demand at the margin.

 

Are there any bright spots?
Warehousing will benefit from an increase in web-based sales, while manufacturing will benefit from any weakening in globalization.

 

The upshot in terms of construction is?
A decline in total work of around 25% in 2020. The prospects of a return to normal in 2021 seem slim, especially in the private sector.

 

April 2020