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Over the past week we have seen a further small increase in the volume of delayed construction projects due to COVID-19. We provide some interesting survey evidence, a report of projects staying open and further findings of delays at the sub-sector level in the sections below.
This week the UK Government has agreed an extension to the lockdown for a further 3 weeks and are now starting to alter their messaging to one of normal conditions not returning until a vaccine is available.
The ONS published a scenario modelling the impact of Covid-19 on the UK Economy. While primarily focused on the impact on the public finances, it showcased a 35% drop in GDP in Q2 and a return to full capacity over the remainder of 2020. It may turn out that the ONS’s modelling is too severe a drop initially and the recovery too fast. The uncertainty at the current time makes any forecast very uncertain.
In some positive construction-related news, this week the Government gave the go-ahead to construction work for HS2. The commencement of construction will be positive for firms who have won contracts on the project, as long as they are able to comply with social distancing guidelines.
This week sentiment has shifted towards the issues companies are experiencing reopening sites and maintaining or restarting activity. Many contractors and subcontractors are reporting difficulties meeting government guidelines. Several construction companies are also reporting they are coming under pressure to reopen sites from main contractors and/or clients where they cannot guarantee worker safety. There continue to be concerns with supply of materials and there are also concerns emerging around increasing costs.
We continue to see small increases in the overall number and value of delayed projects, however we have also directly confirmed a number of projects as remaining open through our research efforts. Excluding Hinkley Point, the largest sector with projects confirmed as remaining open is the Infrastructure sector with £3.5bn of projects. The Medical sector follows, somewhat unsurprisingly given the current crisis.
We continue to receive both new projects and decision updates from the planning process. Activity continues at the lower bounds of normal, with planning applications on a slow downward trend. So far in April, contract award values have been concerningly weak, though this may be due to the public holidays around Easter.
Most Covid-19 related project delays remain in the residential sector. Infrastructure remains the next most affected sector. The Medical Sector, while the least impacted sector, has seen some large changes with most delayed projects in London reopening. This is offset by an increase in delayed medical sector projects in the elsewhere in the UK.
There have been only minor changes to the impact of delayed projects across different planning stages. This week we’ve seen an increase in projects at the tender stage, however the numbers are very small compared to the projects at later stages of the process.
The average value of projects impacted by Covid-19 remains concentrated in the £10-50m and £100-500m categories when considering project value. When considering the number of projects, the most delays are in the £10-50m category and the £1-10m category.
We will continue to provide weekly updates, including themes we uncover as further information becomes available. For a more detailed review of the construction projects affected by COVID-19, please click here and get in touch.