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Covid-19 and the European construction sector

Near-term prospects for the construction sector are challenging, but the Covid-19 pandemic may bring about a sustained period of modernisation. 

World Built Environment Forum
18 May 2020

While the immediate impact of the Covid-19 lockdown on the construction sector has been severe, the crisis may ultimately prove to be a catalyst for radical change. That was the hope shared by an industry leading panel, convened last week to consider the near-term effects and probable legacy of the crisis.

Recapping the results of the RICS Global Construction Monitor for Q1 2020, the Institution’s Chief Economist, Simon Rubinsohn, cautioned that the macro-economic picture remains fluid.

“There’s certainly going to be a bounce back as construction sites return to activity. But in terms of output beyond that, there’s a lot of question marks about demand, funding and just how sustainable the economic recovery will be.”

Domenico Campogrande, Director General of the European Construction Industry Federation (FIEC), concurs. The FIEC is currently conducting weekly surveys of its membership in order to gauge industry sentiment across the EU27. The findings have thus far made for sobering reading.

“The situation across Europe is very diverse. There are countries where activity has continued more or less as usual, and others where everything has stopped completely. It’s difficult to give an overall picture, but we expect a decrease in activity for this year 2020, compared to 2019, of around 20%. It’s a big number, and the figures for 2021 also look quite bad at this stage.”  

The situation across Europe is very diverse. It’s difficult to give an overall picture, but we expect a decrease in activity for 2020 of around 20%.

- Domenico Campogrande, Director General
FIEC

The panel was in agreement that the severity of the crisis has increased the likelihood of a series of paradigm shifts within the industry. Governments that have wrestled with their balance sheets since the Global Financial Crisis of 2008/09 have been forced into sudden and sizeable social security spending programmes. The knock-on effect for the funding of infrastructure and capital projects is unlikely to be beneficial. It has been widely noted that the shock to the global economy is unparalleled in peace time. Sue Kershaw, Managing Director of Transportation at Costain sees the Second World War reconstruction efforts as a useful precedent. “We only paid off our Second World War debt a few years ago. Why can’t we live with debt, accept debt?”

Rubinsohn continues, “I do believe that we will have to live with a higher level of debt. In an environment in which interest rates are likely to remain low for the foreseeable future, I’m not sure that’s a major problem.”

It is not only governments that will need to reconsider longstanding assumptions. Kershaw believes, “The expectations of funders will also need to change over the long-term. That may call for a different set of funders with different philosophies. I also think we’ll need to shorten supply chains and, in the UK, review our international reliance on goods and services.”

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The construction sector has long been maligned as slow to adapt: an industry in which outdated practices are entrenched and leaders are obdurate in the face of new realities. The extent to which these criticisms are fair has been debated at previous WBEF global summits and elsewhere. Nonetheless, Alan Muse, RICS Global Director of the Built Environment, sees now as an opportunity to effect a generational step-change in working practices. 

“The adoption of digital manufacturing technologies has got be set in train across the industry. Covid-19 will no doubt be a catalyst for this moving forward. Offsite fabrication, for instance, will be important in fulfilling the need to social distance onsite. I also think that the industry has to have a new perspective on value in procurement. We spend 15% of global output on dispute work. There’s no doubt that getting better at project initiation and value procurement will be to our benefit.”

Tim Neal, RICS President, suggests that the industry recognises the potential for positive change: “Many are seeing this as an opportunity to adjust, adapt and accelerate. We need to look at it that way and find the opportunity in the crisis.”

But Neal is clear that this is, first and foremost, a human tragedy, and one that has the potential to hit the construction sector harder than most. “The need to address the concerns of the workforce around health and safety is clearly the immediate priority. There is no better way to demonstrate our commitment to positive social impact than by safeguarding our people.”

There is no better way for the construction industry to demonstrate its commitment to positive social impact than by safeguarding its people.

Tim Neal, President
RICS

If the industry can weather the initial disruption and effectively state its central importance to the global economic recovery, a brighter future beckons. Says Kershaw, “This is our renaissance. We’ll never get a chance like this again to change our industry and we have to grab it with both hands.