Construction sector sets its sights on rebuilding after Covid
With many forecasters predicting a tough year for the construction sector, is the industry feeling the pain on the ground? reports
ON March 28, the cranes, heavy-duty delivery trucks and forklifts that carry out work on sites the length and breadth of the country were stopped in their tracks. Covid-19 and the ensuing pandemic meant Ireland’s construction sector was told to down tools for an indefinite period of time.
The construction sector, a vital component of our economic engine responsible for building the roads we drive on, the houses we live in and the places in which we work, had finally stalled. It was one of the last sectors to go into temporary hibernation.
For many businesses, the impact was immediate. Matt Gough, innovation director at construction firm Mace, said he had never seen anything quite like it throughout his career. “We’re not sure the sector has experienced anything like the impact of Covid-19,” he said. “Our workforce went from 1,400 people on site to zero during the lockdown.
“Across the entirety of Mace projects in Europe, we went from 100pc to 10pc of output overnight as a result of lockdown. We talk about that as the shock. The next risk is the time-bomb. The impact of project delays, cost overruns, acceleration measures — which are generally held by the supply chain, which is already operating on thin margins and low cash balances — is yet to be understood.”
As the lockdown hit, the industry was concerned. With the pounding sounds from productive building sites replaced with the sound of silence, the outlook for the sector looked bleak.
Last month, industry forecaster Euroconstruct released figures showing that it expected the Irish sector to suffer a contraction that would surpass any single-year decline during the financial crisis. It predicted that Irish construction output would fall by 37.7pc this year due to both the enforced shutdown and the impact of new safety measures on productivity, worse than the most significant fall during the financial crisis of 33.6pc in 2009.
Others have also predicted declines. Last month, Steve Bowcott — chief executive of Ireland’s largest construction firm, Sisk — warned the construction sector could enter recession next year. Plans by Sisk, which grew turnover to almost €1.4bn last year, to hire an additional 250 staff this year were reported to have been shelved.
Even with much of the sector getting back to work on May 18, Bowcott has not been alone in the industry to report challenging times ahead.
The first to know of pending downturns in construction are those behind the plans for future projects — the architects. Orla Hegarty, a lecturer and assistant professor in architecture at UCD, said she had already heard anecdotally about concerns regarding redundancies.
“There is a feel of 2009 about it from my side, though it is still early days,” she said. “Generally, we are heading into a recession, which is always awful. The construction sector was by far the worst hit in the last recession. It had the highest unemployment, the highest emigration, the highest mental health and suicide instances, and it was never helped to recover.
“Even by this year, we were back up to around 150,000 people employed,” she added. “That number was 275,000 before the recession, and it has never been helped back. Some sectors, particularly in the regions, have been limping over the past few years and have been hit with another body blow.”
The multi-faceted construction sector has many different arms. From companies focussed on building roads to those developing apartments and offices, not all will share the pain equally.
Declan Lowry, preconstruction director of Collen Construction, which works across most areas of construction, said that as some sectors of the economy, such as tourism, hospitality and retail, have been hit harder than others, the construction services which specialise in these areas will also suffer.
“It has had an impact; it has added cost,” he said. “Some developers may have to re-evaluate whether or not they are going ahead. A lot of projects would be quite tight, whether or not they are financially feasible to do. This has pushed one or two back to re-evaluate where they are.”
Lowry said that the international arm of Collen, which predominantly works on data centre construction in Europe, had been critically important to the business through Covid-19. Out of around 15 projects in Ireland, only two or three were allowed to continue through the lockdown leading to a collapse in revenue here. Collen had about five sites across Scandinavia and Germany which were allowed to continue, with the income helping the Irish business.
“That is how we see the industry in Ireland; it is very cyclical,” he said. “It is very hard to get it to an optimum position. We are either very busy or very slack. We tend to go from one to the other very quickly.
“That’s one of the reasons why we have operations in Europe, as it acts as a second point for Collen in Ireland.”
Not all of Ireland’s construction businesses, which are predominantly SMEs, have international arms that can cover any slowdown here.
Shane Dempsey, director of communications at the Construction Industry Federation (CIF), said the impact of Covid-19 and the two-month shutdown is still to be quantified. Based on average annual turnover, he estimated the two-month break in construction could have equated to near €2bn worth of activity for the sector.
“We also saw 150,000 employees effectively put out of work for that period,” he said. “Construction companies are now redoubling their efforts to make up this lost time in terms of output by the end of 2021.”
“Doing this, whilst incorporating new Covid-19 measures deserves recognition, I think, and support from Government. That’s why we’re proposing that the industry is used as a vehicle, a force multiplier, an economic accelerant to drive recovery throughout 2020 and 2021.”
The significant hit to revenue from the lockdown is not the only area that is hitting the industry in the wallet.
Colin Sheridan, an analyst with stockbroker Davy, said that new Covid-19 measures and associated fixed costs could also affect profitability.
The sector currently has to operate a two-metre social distancing rule, which has reportedly hit productivity. Sheridan shared estimates from those in the industry which suggest that, if you were doing 100 units before the pandemic, you could now only do 80 under the current rules.
Some in the industry have estimated build costs for homes could increase by up to 10pc based on new safety measures and the associated costs. With margins already tight, Sheridan said increased costs could put developers off future projects, while these safety measures are in place.
“If a developer can’t generate some kind of a profit, it is less likely to build on the next site and is less able to reinvest in growth in the business,” he said. “That is a 2021 or 2022 impact — it is less obvious, but needs to be considered.”
Despite the potential hit to builders’ wallets, many in the industry have said that the return to work has been far better than expected. Indeed, CIF’s Dempsey said that members had reported a “very positive” return to work, with the industry group’s Covid-19 online induction programme having been utilised by over 180,000 people.
Stephen Garvey, chief executive of listed housebuilder Glenveagh Properties, said the company had a mostly positive experience since tools were picked up again. In May, the company introduced a phased return on 80pc of its sites, primarily focussed on completing units which are signed or reserved and are capable of completion within a short time frame.
Garvey believes the company’s staff know their responsibilities and have been working well under the new safety measures, with the big open housing sites they work on lending themselves to social distancing measures.
“In fairness to the workforce, they have adapted to this really well,” he said. “What we have really noticed is that the housing sites can get up to production, but the apartments are slower to get up to the same output because you can’t physically get the same amount of people on to those developments. That has been a bit of a hindrance, but the majority of the stock we are delivering across the board is housing.”
Garvey added that the innovation shown by the sector had been a real positive. Glenveagh has used technology to help manage some of its developments offsite, as well as utilise its offsite construction facility to build timber frames.
The housebuilder has been carrying out virtual showings of homes for interested buyers. It is also rolling out a new system where people can physically view a property by entering a code at the door allowing them to enter and see the home.
NEEDING SUPPORT
AS the construction sector bears the brunt of Covid-19, industry bodies are looking to the Government to take action.
The Construction Industry Federation (CIF), the industry group for the sector, believes if the right moves are made, the industry can help to drive Ireland’s economic recovery.
Shane Dempsey, director of communications at CIF, called on the Government to introduce supports this month. He said new policies such as a shared equity scheme in housing, bringing forward public projects to keep contractors working, investing in water infrastructure and utilising EU funding to help Ireland’s sector innovate and export could drive construction forward.
Hardware Association Ireland (HAI) also has a plan to help the industry get back on its feet.
The group, which represents over 400 members nationwide and 26,000 staff in the sector, has launched the Rebuilding
Our Future plan. It includes a call for the Government to reintroduce the Home Renovation Incentive scheme from 20202023 to encourage homeowners and landlords to renovate their properties.
Martin Markey, chief executive of the
HAI, said the plan could deliver a “badly needed shot in the arm” for the economy and the construction sector.
The positivity regarding the reopening was also included in industry consultant Mitchell McDermott’s Covid-19 Construction Industry Update, published last week, which looked at 42 live sites with a build value of around €1.8bn. The report said some subcontractors had reported less interruption to their work area due to fewer subcontractors working in the same space.
Mitchell McDermott’s report pointed out the high level of return to sites. Across its sites, 96pc were “fully operational”, with the remaining 4pc having stopped for “funding reasons”.
It also said that resource levels had ramped up faster than anticipated. 45pc of its sites, mostly those at an early stage, were reporting 100pc of resources being back on site. The majority of the other sites, mainly those at the finishes stages, were down 5-15pc.
The report added that, while the majority of sites might be back to 90-100pc of pre-Covid levels, the productivity number may prove to be “more allusive”. It said this was “not surprising” as it is “intertwined with current and impending contract claims for extensions of time”.
Despite the positivity, it also pointed out some concerns regarding the pipeline of projects. Looking at the pre-planning stage, it said those in areas with a supply-and-demand imbalance, such as residential, were still moving ahead at pace. At the same stage, it pointed out that some projects in sectors hit by Covid-19, such as hotels, may have stalled or are now under review.
At the tender stage, the update also stated that it had noted a “renewed hunger” developing among contractors, noting that the pipeline in some affected sectors had stopped or stalled due to funding or reassessment.
Looking at the sector, Collen’s Lowry is sure that the construction industry has enough work to keep it busy for the next six to nine months. Looking past that time frame, however, he believes there may be some projects that inevitably end up shelved.
While this is concerning for the industry, Lowry still holds out hope that the doom and gloom that has clouded this period for the sector won’t be as bad as some fear.
“We don’t know if there will be some sort of a bounce back,” he said. “There are certain areas of construction that are buoyant and will stay buoyant while others won’t bounce back to where they were in 2020, particularly in hospitality and retail.
“The industry will level off or drop in some areas,” he added. “I personally would be hopeful that in six months it won’t be as extreme as people think it will be and that there will be that bounce back. It could keep the industry on an even keel.”