The Construction Forecast Post-Coronavirus

5 min read • Jun 22, 2020 • Derek Miller

Businesses around the country are working to rebuild from the destruction caused by the coronavirus pandemic. While local businesses and global brands are starting to get back to normal, we have a long and arduous road ahead.

For example, Disney estimates that it lost about $1 billion in operating income in the first quarter from the closure of its theme parks and cruise ships beginning mid-March. Even though Disney plans to reopen its parks in July, they anticipate a slow and challenging return to profitability after a 4-month closure.

While tourism is undoubtedly one of the most negatively affected sectors from COVID-19, many other industries were also hit. 

The construction industry is another industry notably affected by the pandemic.

Many states shut down construction during the coronavirus pandemic, causing production delays and increased expenses. Clients of construction companies who were once expanding are now putting their projects on hold or limiting investments because of the financial uncertainty surrounding the pandemic.

With an estimated market size of $2 trillion and more than 3 million businesses, the construction industry is an interesting sector to analyze following the coronavirus pandemic. 

Will construction return to “business as usual” post-coronavirus, or does the sector have more rebuilding ahead?

Construction Companies Took a Significant Stock Market Hit

The country’s focus on the pandemic shifted at the beginning of March 2020 as stocks plunged in reaction to the virus. Businesses across the country shut down, unemployment soared, and states issued stay-at-home orders. 

Since then, the markets haven’t fully rebounded, but analysts have been able to see which industries were hit the hardest and which ones have been slowest to heal. 

Construction, engineering, and building materials were all hit incredibly hard, according to a report by McKinsey & Company. Homebuilding companies faced the biggest drops as the market responded to fears that high unemployment would drive a recession and housing crisis similar to 2008. 

While stock prices do not always reflect company performance, they do indicate consumer confidence. The fact that the construction-related stocks dropped drastically shows how little faith investors and economists currently have in the industry’s ability to recover quickly.

The Supply Chain Will Be Disrupted

Even if the demand for construction services remained steady and the industry stable, disruptions to the supply chain would push deadlines, create bottlenecks, and limit production capabilities.

According to Dodge Data & Analytics, about 30% of building materials used in the US come from China, and many of these overseas factories shut down during the pandemic. It will take time to get these offshore partners up-to-speed and producing the necessary level of materials. Moreover, added security and guidelines surrounding international trade because of COVID-19 will create more delays.

These hurdles in overseas construction materials increase the demand for domestic products. While some contractors have already started sourcing their materials locally (or regionally), others are late to the game. Without immediate access to the materials needed for their jobs, many construction companies are at a standstill.  

The availability of materials also depends on what construction companies need. For example, stone imports from Italy ground to a halt as that country went into lockdown. While this isn’t essential to most construction projects, import and production limits may further restrict access to important materials.

People Are Changing How They Interact with Buildings

Office life may have changed forever because of the coronavirus pandemic. Millions of workers around the world were forced to execute their jobs remotely—offering a glimpse into what work-life might look like in the future.

Many have theorized that remote work and flex-schedules will become the new normal throughout the US. Employees are enjoying the added freedom and autonomy of working from home without sacrificing productivity or risking their health. Best of all, employers are learning that fewer employees in the office reduces overhead and creates a more profitable business.

Even Facebook’s Mark Zuckerberg said, “It’s possible that over the next 5 to 10 years…I think we could get to about half of the company working remotely permanently.” This move accounts for tens of thousands of jobs, and you can expect hundreds of other companies to follow suit. 

This transition to remote work means companies will need less office space. Instead of commercial campuses and massive office buildings, construction companies will likely develop smaller offices or co-working spaces. Remember, there is a financial benefit to companies that have remote employees: they can save millions of dollars each year on real estate property costs. 

However, other experts believe the office sizes will remain the same, but fewer people will be in them. Employees won’t be packed in with only a few feet each but rather will have their own offices or spaced-out cubicles.   

Commercial construction companies should expect some changes in how they execute projects moving forward if nothing more than constructing buildings to be social-distance-friendly.

High Unemployment Means Fewer Homeowners

Outside of the commercial world is the residential construction industry. This sector ranges from large, single-family homes to multi-family apartment complexes. One of the main reasons why homebuilding stocks plunged was because of high unemployment rates. 

When people lose their jobs, they can’t afford to build new homes. They continue to rent, live with roommates, or move in with family members. This change in residential habits could cause a drop in housing prices and create a surplus of available homes, making the housing construction industry significantly less profitable than in recent years. 

Everyone wants the construction industry to rebound quickly, even people who don’t work or invest in it. A healthy construction industry keeps people employed and helps communities grow. However, the COVID-19 pandemic may limit how construction firms operate and could hold them back through 2020 and beyond. 

Derek Miller

Derek Miller

Derek Miller is a writer specializing in entrepreneurship, small business, and digital marketing. His work has featured in sites like Entrepreneur, GoDaddy, Score.org, and StartupCamp. He’s currently the CMO of Smack Apparel, the content guru at Great.com, and a marketing consultant for small businesses.