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Global Construction Activity Contracts As COVID-19 Stalls 25% Of Projects And Cost Pressures Rise

RICS Global Construction Monitor, Q2 2020

  • Construction activity contracts across all regions in Q2 amid lockdown and impact of social distancing measures
  • 25% of projects were halted in the second quarter, and on-site productivity is predicted to fall 12%
  • Expected cost escalations to put significant pressure on markets over next twelve months
  • Productivity loss from COVID-19 in New Zealand is expected to be well below the global average (5% in New Zealand vs 12% globally).

The full impact of government lockdowns on construction activity was realised in the second quarter of 2020, with 25% of projects put on hold according to RICS’ latest Global Construction Monitor.

RICS’ Global Construction Activity Index, a measure of current and expected construction market conditions among construction professionals read -24 in Q2, highlighting both the hit to activity, and a subdued outlook. While this measure was negative across regions, it was lowest in the Middle East and Africa (-40), and highest in the Americas (-14).

Falling sentiment reflects the impact lockdown and social distancing measures have had on construction projects. Professionals in the sector report that 25% of projects globally were put on hold as a result of lockdowns, with more placed on hold in the Middle East and Africa than in other regions.

Sluggish bounce back envisaged in construction as productivity set to decline

Looking ahead, respondents don’t envisage an immediate bounce-back in activity. Only 20% of projects on hold are expected to restart imminently. On average, these are expected to be on hold for another 131 days. The good news is that only 0.3% of projects globally are expected to be permanently cancelled.

And for projects that continue, social distancing and health and safety precautions will restrict activity. Professionals in the sector expect onsite construction productivity to contract 11.7% globally, although there is some variation. While respondents in Singapore expect a 26% pullback, European markets broadly expect to see a single-digit decline in productivity, as do respondents in China, Canada, Australia and New Zealand.

Mixed outlook for New Zealand sector

Survey participants in New Zealand continued to report downbeat conditions in the construction market during Q2. The Construction Activity Index was little changed at -29 (vs -27 in Q1) as private residential and nonresidential workloads were seen to have contracted, and work on infrastructure projects was said to be little changed.

This appears to be a result of increased work on water and waste projects for the second consecutive quarter offsetting more subdued activity around ICT, social and energy infrastructure.

In net balance terms, new business enquiries and profit margins contracted at a quicker pace than during Q1 as the full impact of government mandated lockdowns came into effect. After being little changed during Q1, headcount also appeared to be cut during the second quarter.

As in many jurisdictions, a lack of demand and financial constraints were cited as the two main drags on activity. Skills shortages appear to be confined to a shortage of skilled trades people.

Materials costs continued to increase in Q2, and are likely driving expectations for a 3% increase in overall construction costs over the next twelve months. Given tender prices are not expected to change, it is perhaps unsurprising that margin pressures are expected to persist over the next year.

One bright spot is that 77% of respondents said they have not consistently been receiving bids below cost in Q2, well above the global average of 56%. The productivity loss from COVID-19 is also expected to be well below the global average (5% in New Zealand vs 12% globally).

Although the bulk of headcount cuts appear to have occurred during Q2, more reductions are expected over the next twelve months. Although infrastructure workloads are expected to increase modestly, activity elsewhere in the market is seen contracting further.

Infrastructure set to lead subdued recovery

Globally, professionals in the sector expect private non-residential workloads to contract further. By contrast, work on infrastructure is expected to expand over the next twelve months, albeit modestly. This follows some governments’ attempts to expedite projects in order to stimulate economic activity, largely led by Asia Pacific and the Americas.

Sean Ellison, Senior Economist, RICS, commented: “A V-shaped rebound in construction seems an unlikely prospect while concerns remain around the transmission of the virus. The sites that managed to remain open or have reopened are seeing productivity reduced by necessary steps to protect workers’ health and wellbeing. This may trigger greater innovation, whether through adoption of new technology or modular construction, to offset productivity losses. But even so, the economic backdrop presents an additional and more substantial challenge yet - dampening demand.

“Infrastructure is one bright spot, and we have seen multiple governments reaffirm their commitment to infrastructure spending in response to the pandemic. Accelerating and delivering on ‘shovel ready’ projects will provide a firmer footing to many firms in the sector, supporting those further up in the supply chain.”

Margin pressure mounts as underbidding emerges

While the global shock to demand has prevented tender prices from rising, the cost of materials has also risen, driving construction costs higher. As a result, respondents almost universally noted deteriorating margins in Q2, and they expect it to persist for the next twelve months.

At the same time, underbidding is taking place. 44% of respondents reported consistently receiving tender bids below realistic estimates for cost. On average, these underbids are 6.9% below cost.

With activity falling, and margins under rising pressure, respondents also reported a sharp reduction in headcounts, and expect this trend to persist for the next 12 months.

Alan Muse, Global Director of the Built Environment, RICS, commented:As the industry comes under mounting financial pressure, we can’t afford to repeat the mistakes of the last global recession. Rising costs may challenge the viability of some schemes, but it is equally important we do not see the procurement process become a race to the bottom on price. Doing so is incompatible with the need to build back better. Considering procurement decisions through a wider lens, covering both financial and ESG drivers, will help to avoid low margins and disputes as the industry recovers.

“More broadly, a global economic recovery depends on the health of the construction industry, and its health depends on the flow of investment into new projects. We can expect public spending on infrastructure projects that are already advanced, but we must refocus collective efforts on unlocking private capital too. Making infrastructure more attractive to global investors means greater transparency and better metrics - improving the quality and standardisation of data, whether relating to construction costs or an asset’s performance.”

RICS Global Construction Monitor

RICS’ Construction Monitor provides a quarterly guide to the trends in the construction and infrastructure markets. The regional reports are available from the RICS website along with other surveys covering the housing market, residential lettings, commercial property, construction activity and the rural land market.


Survey questionnaires were sent out on 11 March 2020 with responses received until 16 April 2020. Respondents were asked to compare conditions over the latest three months with the previous three months as well as their views as to the outlook. A total of 1323 company responses were received globally. Results are collated at a country level with regional results only reported if a minimum of ten responses received. Responses in Canada were collected in conjunction with the Canadian Institute of Quantity Surveyors. Responses in the United States were collected in conjunction with the Association for the Advancement of Cost Engineering.

About RICS

RICS promotes and enforces the highest professional qualifications and standards in the valuation, development and management of land, real estate, construction and infrastructure. Our name promises the consistent delivery of standards - bringing confidence to markets and effecting positive change in the built and natural environments.

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