COVID-19 Construction Update 3rd July 2020

The construction industry has restarted activity since the plethora of site closures in March and April. This will therefore be the last weekly briefing in this format. We will, as ever, be continually reviewing the situation and if the need arises, we will respond accordingly. If you have any feedback on these briefings or the possible content of future briefings, please do get in contact with your client manager or myself directly at tom.hall@barbour-abi.com.

Over the last fortnight the number of projects confirmed open or restarting continue to increase along with a corresponding fall in delayed projects. The value of open projects has increased as well as the total number of projects. Scotland has seen the majority of change with London seeing a smaller change. The rest of the UK has been broadly flat.

The planning environment is showing consistent growth in all areas, though it is on a slow upward gradient rather than rushing back to previous levels. Planning applications and new tenders are back to near pre-crisis volumes; however, decision updates and contract awards remain significantly depressed.

Economic conditions

Further evidence on the economy’s performance in May and indicators for June have continued to be published over the last fortnight. Positively, the June Markit/CIS PMI survey results have seen substantial rebounds back to ordinary levels.

It appears that a significant rebound in economic activity occurred in June and is set to continue through July. Nevertheless, until we receive more tangible information through July the size and strength of the recovery will remain unknown. Meanwhile other economic indicators are weakening. There have been many announcements of significant job losses over the last month.

This week’s “build, build, build” government announcement of £5bn of investment across the infrastructure, education, medical and public sectors was welcome. While it is investment already promised and is relatively minor compared to the £100bn in March’s Budget, it is a useful first step and an important indication of intent that the government is serious in its “levelling up” strategy. Learn more about the governments “build, build, build” announcement over on our YouTube channel.

While several encouraging signs indicating a strong recovery have emerged over the last few weeks, the road back to previous output is not going to be straightforward as there remain many downside risks. The second half of 2020, while maybe not as momentous as the first half, is likely to be noteworthy.

Research findings

Through the whole epidemic what has been striking is the variety of experiences, with some companies unaffected and others with all sites completely closed. While our research suggests many sites have reopened, we are still finding a small proportion of sites remain closed.

The planning environment appears to be improving with a noted increase in the numbers of new tenders. However, we are picking up concerns over additional clauses that require no change in delivery timescales with subsequent virus outbreaks, and fears over whether new contracts will be signed and progressed.

Construction project information

The last fortnight has seen a continued increase in projects confirmed open or restarting. Scotland has seen most of the change, split across the infrastructure and residential sectors with smaller increases in the commercial, hotel and leisure, and education sectors. London has seen a smaller overall change, mainly in the commercial sector. The rest of the UK has been broadly flat. The value of delayed projects has reduced. There remain several delayed projects in Scotland, mainly in the residential and infrastructure sectors, due to its phased approach to restarting activity.

Planning activity

All elements of planning activity remain on an improving trend. However, we have not yet seen large increases from depressed Covid-19 levels. Planning applications and tenders are now broadly comparable to pre-crisis levels; however, decision updates and contract awards remain significantly reduced.

• Numbers of planning applications are the strongest element of the planning environment.
• Decision updates remain very subdued but on an upward path.
• The number of contract awards remain at around 50% down compared to pre-crisis levels.
• Tenders have been more resilient throughout the crisis.

Confirmed projects remaining open

Projects confirmed open have seen a further moderate increase over the last fortnight. As expected, Scotland has seen most of the change as projects return to site. However, this has happened in a phased way, so the number of open projects has been lower than anticipated. Overall Scotland has seen openings in mainly the infrastructure and residential sectors, while London is focused in the commercial sector. Other UK regions have seen negligible changes.

Most of the changes over the last fortnight have been in the infrastructure and residential sectors. Smaller increases were observed in the commercial, education and hotel and leisure sectors. The most confirmed open projects continue to be in the Medical sector, followed by the Residential sector. Other sectors are a distance behind, though the infrastructure sector has increased significantly over the last fortnight as Scottish projects have restarted. The Industrial sector continues to have the smallest level of open projects, followed by the Hotel and Leisure sector. Across the UK, Scotland has overtaken London with the highest number of open projects by a significant margin whereas the lowest levels of open projects remain in the East Midlands and Yorkshire.

Projects returning to site

We have seen a further large increase of restarted projects over the last fortnight. Scotland has seen the most change, mainly in the infrastructure, residential, education, commercial and hotel and leisure sectors. London has had an increase which is split between the commercial and residential sectors. Other regions have seen negligible changes.

Overall the Residential sector continues to have the greatest number of projects returning to site by a distance, both by absolute value and relative size. This is followed by the commercial and infrastructure sectors. The Industrial sector remains the sector with least restarted projects, though it does have the lowest amount of delays. Scotland has now overtaken London to have the highest level of restarted projects followed by London and the North East of England, with the rest of the UK at lower levels.

Delayed projects

Over the last fortnight we have seen a fall in delayed projects. Scotland has seen most of the fall in delayed project value, with only minor changes across other UK regions. In Scotland infrastructure has seen the largest fall.

Scotland remains the outlier in terms of total remaining delays even after the high volume of reopening projects, due to its phased approach to restarting activity. Further falls in delayed projects are expected over July. As with previous weeks, all other UK regions are now broadly similar in terms of remaining delays.

The Residential sector now has the most remaining delays, due to projects still marked as delayed in Scotland. The Industrial sector continues to be the least impacted by the delays.

Next steps

We will continue to provide weekly updates, including themes we uncover as further information becomes available. For a more detailed review of the construction projects affected by COVID-19, please click here and get in touch.