At the outset of 2020, economists conveyed modest growth projections for the construction sector amidst expectations for an overall slowdown of the U.S. economy. This growth projection was, of course, before the COVID-19 pandemic took its devastating toll on global economies – setting record unemployment figures here in Pennsylvania and leaving many of us confined to our homes for an extended period.
While certain portions of the construction industry enjoyed some continuity or resumed relatively quickly during the declared disaster period in Pennsylvania (e.g., healthcare, state highway, and certain K-12 educational projects), the remainder of new construction was sidelined for many weeks. Comparatively speaking, the COVID response policies in Pennsylvania have been among the nation’s most restrictive for construction activity. Now, three months in, as all Pennsylvania counties have progressed to the “green” and “yellow” phases, there are hints of life returning to some semblance of “normal” in Central PA.
But what does this mean for construction activity in the Capital Region for the remainder of 2020 and beyond? As an initial matter, stakeholders in Central PA’s construction industry are adjusting to their new normal, which includes, among other things, new safety-oriented jobsite protocols, impacted projects, newly devised policies and contract provisions intended to shift risk, and in many cases – brining workers back from furlough. In some ways, Pennsylvania has more to overcome in terms of a return to “normal” than do operators in neighboring states.
Economists that study the construction industry have in recent weeks revised their projections for construction spending because of COVID. For example, the American Institute of Architects (“AIA”) promulgates a Consensus Construction Forecast – a resource that aggregates input from eight (8) of the nation’s leading construction economics forecasters. In its recent Forecast update, the prior expectation of 1.5% spending growth for non-residential construction has been revised to predict an 11% decline. The commercial and institutional categories are modeled for similar activity, as commercial’s 0.6% once projected growth is now forecast as a 14% decline, and the 2.9% anticipated growth for institutional projects is now projected as a 7% decline.
The economists in the AIA’s outlook have generally predicted that the health care, education, and public safety segments of the industry will lead the way in terms of construction spending for the remainder of 2020, while the retail and hotel segments are expected to underperform. These projections comport with anecdotal evidence here in the Midstate, where health care and education projects seem to dominate new construction activity.
Among the new construction projects starting here in Central PA, invariably these projects were on the books and in the pipeline for some time before COVID appeared. Looking ahead to early 2021 and assessing the volume and types of new construction starts at that time will offer a more accurate indicator of the true effects of the COVID disruption.