Construction outlook: Summer 2020

The Coronavirus-inspired economic lockdown suggests the UK will endure a deep recession in 2020,of close to 12% according to our estimates. Assuming certain sectors of the economy sustain lasting damage, and consumers are generally more cautious, the outlook for GDP, while one of growth beyond mid-2020, is one of gradual recovery as opposed to swift bounce-back.

The volume of construction output is forecast to reduce by close to 23% in 2020. This decline is comprised of a steep fall in the second quarter of 2020, followed by recovery, of varying degrees by sector, over the remainder of the year. In general terms we expect public sector work to recover well, and exceed 2019 volumes by 2021/2022, while private sector work will take longer to recover.

The sector most at risk is commercial. Lockdown is not only causing immediate financial damage across key markets but also causing economic behaviour to change in ways that undermine established business models. Bricks and mortar retail, already under extreme pressure, faces much-reduced investment, in addition, private education, greatly reliant upon overseas students, has little idea of when and how overseas students will return.   Finally, homeworking, whilst unlikely to become mainstream, will probably negatively impact office demand.

Private housing starts peaked in late 2018, and have declined since – in short, builders had adopted a less bullish stance prior to Coronavirus. Meanwhile, the market looks set for difficult times. Buyers will be reluctant to enter the market due to concerns over job security while fearing weaker prices, lenders have moved away from high loan to value mortgages, on which many first time buyers rely. The nation is in the midst of a historic decline in GDP, and it would be odd to imagine anything other than weaker pricing against such a background. That would render housing more affordable, but consumers.