Author- Angelica Krystle Donati
Source- Forbes
Original Article- https://www.forbes.com/sites/angelicakrystledonati/2020/05/13/whats-next-for-construction-and-contech-after-covid-19/#469e22bb42cb
As the world slowly starts to shift into Phase Two of the Covid-19 pandemic – easing lockdown restrictions and attempting to coexist with the virus – we’re all trying to figure out what world we are coming back to work to, starting from the economic outlook for our countries and our industry sectors. Last week, the IMF’s managing director shared that recent economic data for many countries was coming in below the fund’s already pessimistic forecast for a 3% contraction in 2020. This is hardly surprising, with countries such as Italy (where I live) and the UK risking GDP losses of 9.5% and 14% respectively for the year. In the IMF’s report, the US economy was forecasted to shrink by 5.9% this year.
What does this mean for specific sectors? In this two-part mini-series, I will be looking at the two sectors of greatest interest for this column: construction, and proptech. Today, let’s dive into the construction (and contech) market.
Back in April, data on the global construction industry showed that, mainly due to a slowdown in China, the sector’s growth would slow to 0.5% this year. Some regions are much worse off – for example, according to ANCE (the Italian construction industry association) production could contract by 10% in the best-case scenario, with the worst-case scenario coming in at a gut-wrenching -28%.
What of the second-biggest market after China? According to an executives survey conducted in April by McKinsey, US construction output growth in 2020 could range between zero and -8% depending on the severity of the outbreak. A recent study by the Associated General Contractors of America and Procore paints a bleak picture, showing the lockdown will have lasting effects in the states where construction activity was most disrupted, such as New York which saw an 80% decline in worker hours. Small firms are more affected than large ones and, additionally, of the 800 firms surveyed two-thirds of currently active ones are experiencing delays or disruptions to projects due to shortage.
So, is it all doom and gloom?
I was given a first look at another Procore survey – out today – of US and Canadian senior executives in the construction owner and developer space, and the numbers are mixed. They have seen a shutdown in construction sites, with 37% of ground-up and 46% of capital improvement projects on hold and are going to reduce their investments this year by an average of 32% compared to their initial 2020 plans. The majority expect their capital spend in 2021 to be less than that in 2019, so the reduction is here to stay. Though most also expect to see project delays, supply chain disruption, and funding source tightening, 81% perhaps optimistically expect an economic rebound before the end of the year.
Economic rebound or not, the study does show one clear silver lining. Tech is the clear winner in terms of the long-term changes to the construction process that will emerge from the Covid-19 pandemic. 90% of organizations surveyed carried on working from home, so perhaps it is unsurprising that 75% of respondents believe that from now on there will be increased use of collaboration technology. As Jonathan Santamaria, Senior Vice President at Promark Partners put it, “The technology enhancements we made three years ago made it easy for us to transition right away from working in the office to working remotely. Our selection process to partner with a SaaS provider is vital in attaining and achieving our continued growth and goals.” While at home, 80% used the time to develop new safety procedures for their projects, therefore it is also unsurprising that 56% believe that another effect of the pandemic will be that, in the future, there will be increased use of safety technology.
Covid-19 is bad for the construction sector, though it is by no means the worst-hit segment. Given its was carried out within Procore’s existing client base, the picture the survey paints is likely more pro-tech than what an average industry stakeholder might have responded. However, anecdotal evidence does corroborate the assumption that the disruption brought by Covid-19 might just pave the way for a faster uptake of tech in the space. In my next column, we will look in more detail at the effects of the pandemic on global proptech.