2020 and Commercial Construction

The construction industry in the UK finds itself in unprecedented circumstances due to the impacts caused by COVID-19 pandemic. The commercial sector is dependent on investor and consumer confidence and output in the commercial sector had already fallen for six consecutive quarters between 2018 Q1 and 2019 Q2. Now because of the pandemic, commercial sub-sectors were halted even more, with activities falling by 70% in April and 60% in May.

Since the news of the second wave of coronavirus broke, markets have been volatile and investors skeptical to put their money into the market. Pauses in existing work are likely to lengthen the time between new orders and construction output. Most sub- sectors and total commercial output is also estimated to fall by 36% in 2020. A slow recovery in offices and financials will restrict growth in 2021 to 29%, leaving output 17.2% lower than in 2019.

Although sharp declines in output between March and May may look depressing, activities on site will begin to resume more strongly from June once restrictions are lifted and site workforces increase. Construction activity in the retail sub-sector was already predicted to continue declining during 2020 and 2021 even before the disruption caused by the coronavirus. The coronavirus did however, add a third strand to the woes of high-street retailers, who have been affected by broad increases in their cost base.

As some of the sub-sectors such as offices and retail were already forecast to see declines in output in 2020, it can be attributed to economic and political uncertainty around Brexit stalling investment decision-making on large projects and resulting in falls in new orders and a gap in the pipeline of projects. The rising cost base and demand for retail space has been redirected to logistics, distribution and storage facilities over the long-term, linked to the structural shift within the retail industry towards e-commerce operations. These impacts are likely to intensify once social distancing measures are more widely lifted in the second half of 2020, particularly given uncertainty around the strength of the economic recovery and the financial toll on high street and in-store retail.

Economic weakness throughout 2020 is also presumed to more likely to affect corporate finances and broaden the prospect of rent defaults beyond flexible and short-term tenants. Retailers with premises on high streets and in shopping centres would experience the most severe financial impacts if further social distancing measures were implemented in 2020 Q4.

On the bright side, the UK has changed its Covid-19 status level from four to three as previously it was considered to be “high or rising exponentially” to now considered as “in general circulation”. It may take some time for the economy to get to where it was but it will get there nonetheless.

Karsons can offer a wealth of knowledge and consultancy services on the Commercial sector in the UK, please feel free to get in touch today for your free consultations 020 3282 7605 or info@karsonsconsulting.com