Knocked down by the coronavirus, the industry is struggling back to its feet
POSITIVE THINKING SERIES
September is a crunch month. Holiday season is over and those of us not in quarantine are being encouraged to send the kids back to school and get ourselves back to the office. Talking to construction bosses it feels as though many want to put the horrendous past six months behind them, press the reset button and make a fresh start.
The problem is that the path ahead is far from clear. We have been in recessions before, of course, and construction knows its fate follows that of the national economy. But this is unlike previous recessions in that a recovery is heavily dependent on how far we can keep the coronavirus under control.
The truth is that, while people are busily making predictions, coming up with scenarios and scouring the forecasts, nobody knows how things will pan out this autumn let alone over the next 12 to 18 months – unless of course we find a treatment or a vaccine before then, though even an effective vaccine may not be the panacea that we might hope.
What is becoming clearer is just how big the impact of the lockdown itself has been on the sector. The ONS data is stark: the economy shrank 20%, while construction activity plummeted 35% in Q2.
And the knock-on effect on companies’ financials has been evident in contractors’ interim results – even the likes of Morgan Sindall and Balfour Beatty took a hit to their bottom lines. Meanwhile EY has flagged that nearly half the industry’s quoted firms issued profit warnings this year and the headlines have been dominated by companies announcing their latest redundancies, totalling over 7,000 to date.
The idea of everyone reverting to 9-5 desk-based tasks seems fanciful now that our eyes have been opened to the potential for home-working
And yet there are glimmers of hope. After hitting historic lows during lockdown, construction has experienced a better than expected rebound, with data from July showing activity increasing at its fastest pace in nearly five years. A strong housebuilding sector appears to be driving much of this, but whatever the reason it feels like many are breathing a sigh of relief and thinking that things could have been much worse.
Certainly, when Building spoke to a range of professionals we found them in broadly positive mood. Yes, the challenges are huge but there are also opportunities. Take Keltbray’s new boss, Darren James, who joined the specialist engineering firm in April, right at the peak of the crisis, after three decades at Costain. He has had to oversee a painful redundancy programme – like many of his peers – and while he acknowledges that commercial office work in London has taken a big hit, his focus is now on grabbing a bigger slice of the infrastructure pie.
As a strategy it makes complete sense; the government’s promised Project Speed clearly signalled that investment in infrastructure would be used to stimulate the wider economy and so in theory many construction firms should be able to position themselves to win work from a plentiful pipeline. The sticking point is going to be how quickly it starts to flow.
James also holds out some hope for the London office market. It might not be the same as before, but he believes the lure of the capital will eventually come back and there will be work again. And he is not alone: Iain Parker at consultant Alinea, which has specialised in City towers, also thinks the London office will bounce back over the longer term, though admittedly he says the office space employers will want will be radically different. The idea of everyone reverting to 9-5 desk-based tasks seems fanciful now that our eyes have been opened to the potential for home-working.
But it is the housebuilders that are seeing a very positive market right now. Sales are going through the roof, with Rightmove reporting that August’s figures were 60% up on last year. Clearly this has been boosted by pent-up demand and the stamp duty cut. One SME specialising in housing says he has been amazed at the volume of potential work coming through, and the particular interest clients are showing in modern methods of construction.
But the key words there are “potential work” – not all clients are signing on the dotted line. Even in this apparently booming sector there is caution about how long the good times will last given the economic headwinds and fears over the Brexit negotiations.
Uppermost in some investors’ minds is the winding-up of the furlough scheme at the end of next month. Already employers are having to pay national insurance and pension contributions, and from this month they start paying 10% of wages. The concern is that firms that are not seeing revenue return will not be able to support these rising costs, putting a lot of jobs at risk. Unemployment is currently at 4% but the Office for Budgetary Responsibility’s central scenario predicts the jobless rate peaking at 12% before Christmas.
For construction firms – which have claimed a collective £2.9bn in furlough money – the job retention scheme has worked and has even been called inspired. But now the consensus is emerging that perhaps it is time for the sector to stand on its own two feet, if heavily supported by a strong pipeline of public sector work. The months ahead will not be easy but the positive mindset among the people we have spoken to suggests they will find a way through.
Chloë McCulloch is the editor of Building
POSITIVE THINKING SERIES