How the construction industry is being impacted by the Coronavirus and steps to minimize its influence on individual projects
March 11, 2020
INTRODUCTION
The effects of the coronavirus, COVID-19, are being felt in South Carolina with a growing uncertainty regarding the virus and its ancillary effects on the economy. The severity of the impact of COVID-19 on South Carolina’s construction industry will be determined by the virus’s effect on the globally interconnected workforce, with primary emphasis on manufacturing employees (material) and construction workers (labor) with the Port of Charleston or any other seaport caught in between. Direction for those involved in the construction industry can be found by analyzing U.S./China and S.C./China trade conditions and examining current construction labor realities in Singapore.
MATERIAL
Quarantines in China have already hindered manufacturing output resulting in an increase of blank sailings (cancelled cargo ships) in Februaryi. This is problematic to the construction industry as Chinese building products account for 30% of all construction materials imported into the United Statesii. Wuhan, China alone, ground zero for COVID-19, is home to 13 facilities that produce construction materials and 150+ businesses that manufacture other products often used in constructioniii.
The reduction in Chinese manufacturing and seafaring cargo is beginning to affect the domestic market. Jim Newsome, CEO of the South Carolina Ports Authority, is anticipating a 15% drop in volume during March and Apriliv. Various material suppliers have announced price increases ranging from 5% to 10% on gypsum board, fiberglass panels, acoustical ceiling tile, metal studs and paint. Contractors in South Carolina have reported detrimental lead times on specific architectural light fixtures and are apprehensive about lead times and price increases for steel, casework, granite and lighting products.
LABOR
The effects quarantines can have on a construction market are being realized in Singapore. The island nation is heavily dependent on foreign labor, particularly from China. Chinese laborers who traveled home to celebrate the Lunar New Year have been unable to return due to quarantines and travel restrictions issued by both governments. This absence has led contractors to consider invoking force majeure, a move that has not happened in Singapore since 2007v.
RECOMMENDATIONS
COVID-19’s impact on South Carolina’s construction industry will depend on the national and international severity of the virus. Those planning to develop or renovate properties or who are already involved in a construction project are encouraged to consider the following steps:
- Budget for material price increases
- Consider material substitutions for products that are made or shipped from areas that have been impacted by COVID-19
- Establish a thorough procurement schedule and a strategy for closely monitoring its progress
- Accelerate the procurement schedule and provide laydown areas or temporary storage facilities as needed
- When possible, provide some “cushion” in construction schedules to allow for potential shortages and delay in material deliveries
- Protect workers from infection by following recommendations issued by the Center for Disease Control
- Review force majeure clauses in contracts
In a best-case scenario, it should be anticipated that the industry will experience temporary price increases and prolonged lead times on certain materials. If the worst happens, the ability to deliver projects on time and on budget may be in jeopardy. Proactive, professional management of construction projects and staying abreast of current trends will be critical to success in either scenario.
Sources
i Jensen, Lars. “Coronavirus container impact spread far beyond blank sailings.” JOC.com https://www.joc.com/maritime-
ii Goodmen, Jenn. “Coronavirus impacts could have ripple effect on US construction industry.” constructiondive.com. https://www.constructiondive.
iii Wall, Don. “Coronavirus could have multiple impacts on construction.” constructconnect.com. https://canada.
iv Ashe, Ari. “Southeast US ports brace for volume hit from coronavirus.” JOC.com. https://www.joc.com/port-news/
v The Straits Times. “Singapore construction firms seeking fore majeure advice as coronavirus causes labour crunch.” https://www.straitstimes.com/
ABOUT LCK
LCK is a privately held woman-owned business (WOB) jointly owned by majority partner, Mickey Layden, and Colliers International | South Carolina. Since 1995, LCK has delivered a project management alternative for development of new facilities and for renovations. LCK’s experience in Office, Retail, Industrial, Government, Non-Profit, Healthcare, Educational and Religious projects has proven to be a preferred solution for many owners. Project planning, cost control, schedule compliance and quality management routinely generate cost savings for each of LCK’s clients.
About Colliers International
Colliers International | South Carolina has over 150 staff members, including 65 licensed real estate professionals, covering the entire state with locations in Charleston, Columbia, Greenville and Spartanburg. Total 2019 brokerage volume exceeded $419 million, which included over 452 sales and leasing transactions. In addition to traditional commercial real estate representation services for our clients, the company is actively engaged in Corporate Solutions and Healthcare Services. Colliers International is an Accredited Management Organization (AMO) through the Institute of Real Estate Management (IREM) and is the largest manager of commercial real estate properties in South Carolina, with a portfolio of nearly 14 million square feet of office, industrial, retail and healthcare properties. Colliers International’s staff hold 44 professional designations, the most of any firm in South Carolina. Colliers | South Carolina’s partner, LCK, provides project management services for new facilities and renovations across South Carolina.
Colliers International (NASDAQ, TSX: CIGI) is a leading real estate professional services and investment management company. With operations in 68 countries, our more than 15,000 enterprising professionals work collaboratively to provide expert advice to maximize the value of property for real estate occupiers, owners and investors. For more than 25 years, our experienced leadership, owning approximately 40% of our equity, has delivered compound annual investment returns of almost 20% for shareholders. In 2019, corporate revenues were more than $3.0 billion ($3.5 billion including affiliates), with $33 billion of assets under management in our investment management segment. Learn more about how we accelerate success at corporate.colliers.com, Twitter @Colliers or LinkedIn.
