Viewpoint: Economic Recovery From Recession Starts With Construction
We’re just past the midway point of 2020, and it feels as if we’ve already lived through a decade of economic forecasts this year. Following a period of sustained growth in real estate development and construction, we’re now questioning how deep and long lasting the economic impact of the pandemic will be.
The unprecedented nature of this downturn makes it challenging to navigate. However, a few indicators can help us manage risk and improve planning to withstand, and even capitalize on, the current economic headwinds. Construction industry professionals in the vertical building market have reason for optimism in the third and fourth quarters of 2020.
Materials prices are holding steady, and contrary to popular opinion, demand for materials is now stable, which means we may see a short-term dip in prices, but long-term reductions are not sustainable. An existing backlog of work is helping to momentarily stabilize the market. Deals continue to be made in real estate development, so we look forward to seeing new vertical building projects announced.
Vertical building projects can take years to build, which makes it difficult to predict the pandemic’s long-term impact on the market. Those insights will become clearer in six months to a year. In the short term, as we wait to see how the market reacts, contractors with a strong balance sheet and the flexibility to adapt to changing market conditions will have an advantage over firms that are focused on short-term decisions.
The good news is that right now, buildings are still being constructed, and those projects scheduled for delivery in the third and fourth quarters are helping to stabilize the industry. The second and third quarters of 2021 will be the true litmus test for how a global downturn will affect construction over the long term.
Planning is the enemy of volatility. Contractors who delve into project specifics and plan for all outcomes will be better positioned to employ strategies that avoid delays. Planning should include tactics to avoid materials, parts and equipment shortages caused by supply-chain disruptions. It could also include adapting schedules to accommodate new protocols for jobsite safety or allowing more time to manage logistics, particularly for inspections and permits.
History has shown that the economy tends to lean on construction to help it recover from downturns. We often see the federal government driving the upswing by increasing investments in building and infrastructure, which helps offset decreased spending in other sectors. And, unlike the downturn in 2008, banks and financial institutions remain cautiously optimistic today, with capital to fund construction projects.
The real difficulty with our current situation is unpredictability. No one is accustomed to dealing with the fallout of a pandemic. The biggest question is what markets will look like in late 2020 and early 2021. Contractors can offer partnering solutions and support healthy development by doubling down on project efficiencies and implementing technologies to keep construction budgets as lean as possible.
