The state of the industry

How is the general feeling in the construction industry at the moment?

It’s an interesting time as those who were working on a site had the certainty of having a project to go back to at Level 3. Where the uncertainty has been is around companies not knowing if the following project would still go ahead after the current one was completed, and that uncertainty remains about forward workflows.

In saying that, from what I understand, there have been thousands of proposals for projects submitted to the government as ‘shovel ready’ projects, some of which are very large indeed. In that space, it’s not just infrastructure in terms of roads and bridges, there are schools and hospitals and vertical construction too. The government is also looking at its own housing stock and programmes to retrofit stock is well advanced.

In terms of the public sector, this is creating a good level of certainty going forward. Where the uncertainty lies at the moment is in the private sector. There is a general view that if you are a contractor or consultant who has government work coming through, you are feeling a lot more optimistic than those whose forward workload is reliant on private sector clients.

However, five weeks ago, there was a high level of pessimism across the industry. That has now changed quite a lot with the industry buoyed by how proactive we have been as a sector in working with the government, and together. The Construction Sector Accord has played a major role in that positivity. It has proven to be incredibly valuable with the representation from both government and industry working together. The message is very clear that the government understands how important the construction sector is to the New Zealand economy.

In terms of the way the industry has responded, it has been a collaborative and efficient response. A good example of this is the industry collaboration that occured in producing the Construction Protocols for Level 3. In addition, the construction industry associations have been an effective communication conduit for the delivery of timely and accurate updates out to industry, whether that be the distribution of the weekly New Zealand Construction Industry Council (NZCIC)/Construction Health and Safety New Zealand (CHASNZ) update, or the multiple examples of associations working together to deliver webinars on topical information. 

What is the outlook for the commercial construction sector?

There is uncertainty, and that’s mainly around private sector projects. In some cases, those clients have lost tenants or their tenants are unable to pay rent, which impacts their balance sheets and their ability to undertake new projects. There is uncertainty around projects that haven’t yet got to site and whether they will proceed as planned. This uncertainty is likely to ease over time.

How is the housing market and confidence impacting the industry?

In terms of people moving, buying and selling property, and doing it up, there is less confidence at the moment, which is a move away from what has been a particularly active market over the last few years. As an example, older people looking to sell their homes and take up a retirement village residency may be less likely to do that any time soon due to a lack of confidence in the market, i.e. the value of their home is expected to drop in the short term, and they do not want to realise that loss. 

From a consumer point of view, it’s a great time to be considering a building project, as the industry now has capacity to get to work designing and/or delivering a building project in the short-term, rather than the medium-term horizon line that existed before Covid-19.

What are you seeing in terms of governance and business structures?

There have been some companies I’m aware of who have taken the opportunity to do a bit of a restructure during this period. I don’t know if that is widespread at the moment. On the design side of things, there have been a number of architects, engineers and quantity surveyors whose firms have reduced hours.

There is a concern about what things will look like going forward in this space; some professionals have seen a reduction in their work but whether that is a knee jerk reaction by clients remains to be seen.

There are so many SMEs in our industry, for example a small architectural firm, a small electrical or plumbing company. From a business owner’s point of view, and as an industry, we need to look at how to adjust to the current climate and approach business. While balance sheets are likely to have been shrinking, we need to look at how to maximise margins going forward so we can replenish those balance sheets and have the ability to invest in R&D and become a stronger industry.

The key part of this going forward is ensuring that we don’t succumb as an industry to a low fee environment because there will be those clients out there who will be looking to cut prices, but that isn't sustainable.

Apprenticeships are another key issue to consider for the industry going forward, both in the short and long term. Currently, there are worrying signs that existing apprentices are being let go, and that many employers are now no longer willing to take on apprentices in the near future. This will have a detrimental effect on the industry long term; we should not lose sight of developing our people for the benefit of our respective companies and the broader industry. A number of industry associations are collaborating to develop workable solutions to what the industry considers to be a significant issue.

What is the current outlook for the construction supply chain?

At the moment, I’m not aware of any big problems in terms of construction materials. Materials that arrived on traditional cargo flights and by sea freight are still arriving. My understanding is that the majority of factories in China reopened some weeks ago and materials are arriving here relatively unimpeded, though there are naturally blockages for materials that have been traditionally transported on passenger aircraft. 

However, this is something that is particularly important as we look forward as an industry. In fact, we are currently in the process of developing the content for the upcoming NZIOB Conference, Built to Last. A key segment will cover the supply chain and look at how the New Zealand (or Australasian if we are to consider the latest updates) construction industry can become more self reliant in terms of the supply chain.

There will obviously be a cost implication but at the same time you are creating certainty of supply and the benefits that provides, along with ensuring quality. These are the types of larger opportunities that exist out there to improve and respond to the current climate.