April 01, 2020 10:40 AM

As COVID-19 continues to spread, markets worldwide are feeling the effects. The construction industry in the United States is no exception, with impacts on material deliveries, project funding, and the ability of workers to remain on site all under extreme strain.

Prior to COVID-19, New York continued the trend as the largest and most dominant construction market in the United States, with an estimated value of $62.2 billion of new construction put in place. That’s almost $20 billion more than Los Angeles and Dallas, which were the second- and third-biggest markets, respectively. Activity in New York City was already slowing down but this has been expedited with COVID-19.

The economic effects on construction are highly dependent on how quickly and comprehensively the virus continues to spread. New York’s recent decision to halt all non-essential construction takes the industry into unchartered waters. That said, the construction industry is an agile one; already, design teams and consultants are utilizing work-from-home options and online meetings to keep business moving along with as few disruptions as possible. The biggest impact will be seen on actual project sites: manpower fell across the city during March yet remained remarkably resilient in the midst of COVID-19. However, growing outbreaks on many job sites necessitated a pause. As jobs demobilize and trades disperse, the focus pivots to preparing for a rapid remobilization. Communication amongst all parties involved in the process will be critical: much work can be done during this period to advance design, coordination, and open contractual issues to expedite the restart. Owners across the city will be evaluating the prudent use of funds during the construction halt.

In most markets across the country, the residential sector provides the largest single portion of construction volume; the same is true of New York City, where residential activity accounts for approximately 30% of the total. Since 2015, this sector has seen continued contraction and is not expected to be in growth territory until 2021. Infrastructure, which is the second-largest sector in New York at 19% of overall volume, looks to be experiencing similar reductions. These declines are offsetting gains from the commercial and higher education sectors, which total 17% and 19% of the market, respectively, and which have seen a growth of more than 10% since 2015.

As with many other locations, COVID-19 is expected to have an adverse impact on materials, with shortages and delays already being reported in relation to plumbing fixtures, glazing, steel, tile, and stone. European and Canadian supply chains all offer significant short- to medium-term uncertainty and with now many industrial facilities closed across the country, the procurement decision making process and subsequent oversight of the same becomes critical. Price escalation will fluctuate depending upon the sector, time of bidding, and outside forces such as the aforementioned COVID-19; however, as a rule of thumb, we are anticipating construction prices (in terms of both labor and materials) to continue to increase by between 4% and 5% over the year.

Moving forward, the effects of COVID-19 will dominate the market. With a surge of work expected once restrictions are lifted, we anticipate labor shortages will continue exerting stress on pricing, and this is projected to be the case through 2021. All being well we should see some easing on this front in 2022, with construction volume and growth to return to previous forecasts, thereby bringing activity and labor availability into better balance.