Construction Industry in the Post-COVID Era
Where will the construction industry go from here?
Construction is one of the major backbones of our economy, contributing to 10–13% of GDP. With rises in population and growing urban density, the demand for residential and commercial construction continued to climb over the past decade and was expected to continue modestly at 3% annually. Additionally, VC spend in this vertical surged over 300% between 2018 and 2017*. However, as we all know, COVID-19 has slowed down and in some places completely stopped all activity. But specifically for construction how has and how will this pandemic affect the industry?
Over the past several months, our team has had numerous conversations with construction workers primarily to better understand the challenges that still face this industry as part of our product discovery process. We’ve heard ranges of responses:
“Nothing’s slowing down here because everyone onsite has PPE.”
“Some of our projects have been shut down, but we’re restarting.”
“We’re expecting our revenues to get hit hard this year”.
As I reflected on our conversations with Project Managers, Superintendents, Foreman, and Directors, there were distinct themes that stood out apart from other articles I’ve been reading about how COVID-19 is affecting construction.
We’re at an inflection point for construction to reexamine its operations, methods, and path forward. Based on our research, there are three areas that will experience long term effects in the construction industry.
1) Focus on margins
Traditionally, construction has experienced thin and inconsistent margins (5% on average, some trades can make up to 20%), which has a ripple effect on the entire industry from hiring fresh talent to investing in new solutions**. Our current economic situation is a forcing function for the industry to take a step back and reevaluate where the returns will be greatest. Where will the workers prioritize their time and from a management standpoint, how can owners, operators and managers garner increased margins? This will be critical to sustain the next downturn with more capital to weather difficult periods as well as invest in new bets for the company.
2) Industry specializations
Consumer spending will undoubtedly be different post-COVID-19 as it will take years before we reach back to growth levels reflecting the end of the last decade. Certainly, some industries such as retail, hotel, and travel will experience delayed, postponed, or even cancelled projects while healthcare, warehouses, residential, and data centers will continue to progress. Contractors will need to position themselves and start to specialize in these areas of opportunities to be well-poised for continued growth. This means building unique methodologies and perspectives to address the speed and need of these types of edifices. We’ll deep dive into specific industries in another article.
3) Improvement on methodologies
Combined with the two points above, contractors will need to evaluate their operations and approaches to see how adopting new processes and technologies can help increase margins and speed of delivery. For example, modular and prefabrication construction has already seen tremendous adoption in a few industries like hotels and hospitals, but I predict that we’ll see more adoption in this prefabrication and pre-planning practice across all industries that construction serves. This too will bring a new set of challenges we have yet to discover.
The planning process will also be integral to manage budgets closely and mitigate any possible variance. New technologies to help contractors work remotely will also be adopted to reduce the friction in communications and decision-making.
There’s a lot more to unpack here, but this is just the tip of the iceberg as we look to progress this industry forward. I’m excited to be a part of this organization that values and deeply aligns itself with the builders of this world which is why I joined Stanley X. If you’re interested in learning more about what we’re working on or want to partner alongside us, feel free to reach out to us at www.stanleyx.com and specifically if you’re interested in helping move this industry forward with innovation, apply to be part of our Construction Tech Advisory Board. We’re always looking to connect this industry more. Apply here.
About Stanley X:
Stanley X is the innovation business of Stanley Black and Decker. Located in Silicon Valley, Atlanta, and India, we are a group of business leaders, entrepreneurs, technologists, designers, and strategists empowering innovation across Stanley Black and Decker. Our Mission is to create new sources of growth for Stanley Black and Decker and to lead disruption in our core industries. We do this to ensure that we can effectively serve our customers and markets in the future.
About the Construction Technology Advisory Board (CTAB):
Stanley X is setting up a Customer Technology Advisory Board (CTAB) that will be composed of leaders and stakeholders from the construction industry to support product innovation within Construction Technology. The CTAB is specifically designed to be a conduit between Stanley X and the “voice of the customer”. This will ensure product development receives rapid feedback both on new concepts and existing products to continue iterating on improvements.
About the Author:
Justin Saeheng leads Stanley X’s product innovation efforts within Construction Technology. He is responsible for defining the product vision and strategy in the emerging construction ecosystem. Prior to joining Stanley X, Justin led product teams across various startups and large enterprises.
*https://www.industrytap.com/global-construction-expected-to-increase-by-4-8-trillion-by-2020/1483; https://www.fminet.com/wp-content/uploads/2019/01/2019_Overview.pdf; https://techcrunch.com/2019/02/16/investor-momentum-builds-for-construction-tech/
