Three impacts of the COVID-19 pandemic on commercial building constructions in the United States are project postponements and cancellations, loss of jobs, and productivity and profit losses. ABC’s Construction Backlog Indicator reported that the commercial building sector’s collective project backlog was 8.9 months as of March 2020.
Impact of COVID-19 on Commercial Building Construction in the US
1. Project Postponements and Cancellations
- According to an industry report by Research and Markets, COVID-19 had a significant negative effect on the commercial building construction sector.
- A report by Dodge Data & Analytics revealed that commercial construction activities were halted in some areas of the country such as Boston and Cambridge, Massachusetts, while in other areas such as in San Francisco and Los Angeles, construction activities have been curtailed.
- In general, some projects have been delayed. The hotel and retail sectors are said to be most at risk.
- Project postponements and cancellations have become common due to economic uncertainties and a decline in planning activities.
- A recent survey by the Associated General Contractors of America indicated that 45% of respondents have had current or future commercial building projects canceled by owners.
- The Dodge Momentum Index, “a monthly measure of commercial construction projects in planning fell from 14.45 to 135.9 between March and April 2020.”
- In April 2020, six projects with a value of $100 million or more entered planning, compared to 18 projects in April 2019.
- Also, new safety precautions instituted by States to minimize the risk of spreading the virus such as “limiting the number of contractors on-site at any one time, enforcing social distancing between workers and splitting crews into day and night shifts to minimize contact between them, has resulted in the postponement of some projects.
- ABC’s Construction Backlog Indicator reported that the commercial building sector’s collective project backlog was 8.9 months as of March 2020.
2. Loss of Jobs
- The construction industry was said to have lost 975,000 jobs in April, even though it was considered an essential industry in most states.
- Analysis of the U.S. Bureau of Labor Statistics report by Associated Builders and Contractors showed that nonresidential construction employment declined by 24,600 in March 2020.
- All three nonresidential segments registered job losses, with the largest decrease experienced in the nonresidential building (-10,700) followed closely by heavy and civil engineering (-10,200).
- Nonresidential specialty trade lost 3,700 jobs on the net.
- The need for social distancing was predicted to hit the nonresidential construction industry with immediate large-scale job losses.
- A report by Freedonia Group revealed that much of the commercial building space devoted to offices and corporate suites now lies empty due to remote working.
- The report further questions the ability of the workers in those spaces returning to reoccupy the work spce.
- According to Freedonia, the empty spaces will likely be converted to apartments and condominiums or be taken over by players from other industries, making permanent the loss of the space and employment opportunity.
3. Loss in Productivity/Profit
- A study by “New Horizons Foundation, the research arm of the Sheet Metal & Air Conditioning Contractors’ National Association (SMACNA),” revealed that COVID-19 protocols led to a 7% loss in profit on commercial construction projects.
- The report showed that taking precautions and performing fit-for-duty checks before contractors enter a job site resulted in an 8.7% productivity loss.
- On-job protocols, such as using personal protective equipment (PPE), maintaining social distance from other workers, and making sure workspaces and tools are cleaned and disinfected, led to another 9.2% productivity decline.
- It also found that an average worker lost 85 minutes dealing with COVID-19 protocols over an eight-hour day.
- New Horizons Foundation claimed that a 10% productivity loss for specialty contractors could lead to a 100% loss in job profitability.
- This loss takes about three to six months to become evident in a company’s financial results keeping many contractors in the dark about how much money they are losing to COVID-19.
Commercial Building Construction in the US: Trends
1. Growth in Subcontractors’ Availability
- According to publications by DBSGroup, Construct Law, and Cision PRWeb, the growth and competitiveness in commercial building subcontractors, is a growing trend post the Covid-19 pandemic.
- DBSGroup opined that subcontractors’ availability and construction workforce labor had been an increasing challenge in recent years.
- Turner vice president, Attilio Rivetti, revealed that the increase in subcontractor competitiveness results from the efforts to secure a backlog for their business due to the Covid-19 pandemic.
- The current hiccup in the US economy is expected to provide a reprieve for the lack of subcontractors.
- The halt/postponement of some projects due to the pandemic is expected to increase in subcontractors’ availability, many of whom will become more aggressive with their pricing on upcoming projects.
- Chuck Goodrich, the CEO of Indianapolis-based national subcontractor, Gaylor Electric, reported that his firm had seen growth.
- According to him, he expects an increase in revenue by $18 million, or 7%, compared to 2019.
2. Shortage of Skilled Labor
- According to Contract ERP, Camm Construction, Insulation Outlook, and Contractor Magazine, the shortage of skilled labor is one of the commercial building construction space trends.
- Contract ERP opined that the workforce shortage is one of the biggest concerns for the construction industry in 2019. Many employees were said to have left the industry during the recession and never returned, leaving the construction companies short-handed.
- A survey by the Associated General Contractors of America revealed that about 80% of construction companies have been unable to find the workers they need. The impact includes high cost, outsourcing, and longer project timelines.
- The 2019 USG Corporation and the US Chamber of Commerce Commercial Construction Index (Index) indicate that labor shortage is causing firms to “ask skilled workers to do more work (81%), struggle to meet deadlines (70%), increase costs for new work (63%), and reject new projects (40%).”
- Although the recession was a leading cause of the worker shortage, experts believe that it has been difficult for construction companies to appeal to younger, talented workers.
- A slowdown in immigration has also contributed to this issue, with reports finding that many workers returned to Mexico and other countries of origin during the recession and did not return to the US because of increased immigration controls and increased job opportunities abroad.
Commercial Building Construction: Recent News
1. Growth in the US commercial building construction market (Cision PRNewswire, September 04, 2020)
- According to an Industry report by Cision PRNewswire, the commercial building construction market is expected to grow by a CAGR of 10.2% over the forecast period from 2015-2024.
- Growth across commercial building construction in the United States, especially office, retail, and entertainment, is expected to record negative growth.
- This will be driven by the economic downturn triggered due to the COVID-19 outbreak.
2. Construction Starts Show Additional Gains in June (Dodge Data & Analytics, July 16, 2020)
- Nonresidential building starts were said to have moved 6% higher in June to a seasonally adjusted annual rate of $198.5 billion. Commercial building stats moved 4% higher.
- The largest nonresidential building project to break ground in June was the $384 million Women’s and Children’s hospital tower in San Antonio, Texas.
- Starting in June was the $306 million Aligned Energy Data Center in Ashburn Vancouver and the $294 million renovation of SeaTac International Airport in Seattle, Washington.
3. How Could COVID-19 Change Commercial Building Design? (Cowen Construction, May 20, 2020)
- Many experts predict changes to commercial building design and construction meant to keep building occupants safer in light of COVID-19.
- Such changes include modification in HVAC systems, fewer touchpoints in newer commercial buildings, fewer open work environments, and fewer office buildings.
4. After a brief uptick, commercial construction backlog falls again (Construction Dive, October 14, 2020)
- According to the Associated Builders and Contractors report, the Construction Backlog Indicator fell to 7.5 months in September.
- This represented a decline of 0.5 months from August’s reading and 1.5 months lower than last year at this time.
- Also, the association’s Construction Confidence Index readings for sales and profit margins also decreased.
5. Construction Industry Continues To Feel Impact of the COVID-19 Pandemic (Cision PRWeb, October 15, 2020)
- The company announced the Third Quarter 2020 Turner Building Cost Index, which measures costs in the non-residential building construction market.
- The value was reduced to 1171, representing a (-0.51%) quarterly reduction from the Second Quarter 2020.
6. Commercial Building Construction Industry Report (IBISWorld, August 14, 2020)
- The report revealed that the commercial construction industry revenue has experienced a significant reduction in revenue due to a reduction in business activity in early 2020.
- Since the start of the COVID-19 (coronavirus) pandemic in 2020, the industry revenue fell by 17.4% as construction markets roiled.
7. Warehouses Undergird Commercial Building Starts (Forconstructionpros.com, April 10, 2020)