MOODY'S: EXPECT MORE CORONAVIRUS-INDUCED PROJECT DELAYS

Historically, projects between 2002 to 2019 have experienced delays. Among the worst delays were multi-family projects. An estimated 82 percent were completed at least one month behind schedule, with only 18 percent finishing on time or early. Other sectors including industrial and retail, experienced delays as well, however they were not as drastic. Among the late finishers were industrial projects by four months, office projects by three months, and retail by two months.

Typically, factors behind these late completions are the expected slowdowns such as weather, regulations and building codes, inadequate workforce, and design disputes. The Great Recession that started in late 2007 played into these delays as well.

CORONAVIRUS IMPACT
Unlike previous delays and shutdowns mostly caused by markets, coronavirus resulted in mandatory closures facilitated by the government. The virus also impacted the world’s economy by disrupting supply chains and other business processes. Even with mandatory shutdowns lifted, there is still fear of a second wave hitting in late 2020/early 2021, which could result in another shutdown if severe enough.

In early May, a survey conducted by Associated General Contractors of America found that 67 percent of contractors had at least one project canceled or delayed and 30 percent halted work due to shelter-in-place orders.

Despite safety precautions being implemented, it does not guarantee that business will continue at pre-coronavirus levels. Safety and staffing restrictions can make it difficult to make progress.

Overall, it is Moody’s general opinion that if interruptions continue, then less progress will be made and delays can be expected on construction projects.

SPECIFIC OUTLOOKS
Nationwide, Moody’s predicted that 300,000 multi-family units would be delivered this year. However, post-coronavirus this estimate has been lowered to 246,000 units. If not for coronavirus, multi-family would have delivered a record amount of new construction this year.

Industrial construction needs for warehouse and storage space has seen an increased need due to online shopping. Moody's expects industrial space by the end of 2020 to be 89.3 million square feet, which is down from pre-pandemic 120 million.

Office delays have not been as widely reported, but the use of office space is expected to change drastically with companies going remote. Moody’s expects vacancies in office spaces to rise about three points by the end of 2020, which is a record high for the sector.

The retail industry was already seeing slow growth pre-coronavirus as a result of online shopping. Therefore, the delays were not as significant, however delaying only a few of these projects could have a significant impact due to the low volume of work.

Overall, contractors should expect to continue to see lasting effects of coronavirus leading into 2021 and potentially 2022 and plan their projects accordingly to include factors that arose due to the virus.

Contact our construction accounting team to help you navigate through a post-pandemic recovery.
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