How will Covid affect construction and real estate?

What impact will Covid-19 have upon builders and real estate? Will we see recovery or stagnation?

Article updated: 2 June 2020 10:00am Author: Michael Baxter

Some effects of Covid-19 will be temporary — within two or three years of this crisis coming to an end, in some industries things will go back to normal. Other industries will suffer a permanent shock. What are investors to do?

The permanent shift

Let’s look at a permanent effect of Covid. I will cite Jack Dorsey the boss of Twitter. He is the news at the moment over a big row with the US President. But a few weeks ago he made headlines for another reason. Twitter recently announced that when this crisis has come to an end, its staff will have the option to continue to work from home — forever.

Steps taken by Facebook are a little odd. It too has agreed to have a more relaxed policy regarding home-working post crisis, but to qualify for the extra salary staff receive for working in Silicon Valley they have to prove they were resident in the Valley or qualifying area, at some point over each 12-month period.

City centres and commercial property

The above anecdotes illustrate my core point. Home-working is here to stay — not just with Silicon Valley companies, but worldwide, including the UK. Sure post-Crisis, it won’t be like it is now, but I expect home-working to remain much more popular than it was before Covid. I also expect a lot more meetings to be conducted remotely too.

These developments were going to happen anyway. But as I have often heard it said, Covid has created a decades worth of change in just a few weeks.

The impact on city centres will be devastating. Companies will quite simply need less space in the prime location offices.

Commercial property will be hit hard. I am not sure it will ever fully recover.

Linked to this, the rise of online shopping will accelerate. Already troubled shopping centres will become even more troubled.

We may, on the other hand, see an increase in retail activity closer to residential areas. For example, I live in a small town on the edge of the countryside. I do expect my local high street to benefit, long -run.

Retail property

What about house prices?

If you a regular reader, you will know that I am a big fan of the Residential Market Survey from the Royal Institution of Chartered Surveyors. I am not paying too much attention to economic surveys at the moment, they are not good in extreme circumstances such as those we are experiencing during the Covid crisis. But it’s most recent index did mark a significant fall into negative territory— covering house prices in April.

What will happen to prices now the market has re-opened?

The UK housing market has defied any sense of logic for just about all of this century. Not even the 2008 crash led to a sustained crash in house price.

But I do think we will see sharp rises in unemployment for some time. That has got to impact house prices. The UK economy will not bounce back to where it was pre-crisis the moment this is over. The recovery could take two or three years.

But I also think the Covid-crisis will also have a long-term impact that will affect house prices too.

For one, there will be an acceleration in the move to digital automation as a result of Covid. That will hit jobs, which will hit house prices.

Remote working may mean that house prices in city centres will be hit, but they may rise in areas further away from cities.

If we see less office space being used by organisations, then that space could become residential — so remote working may have the long term effect of making existing property stretch further.

If the UK government opens the immigration door to hundreds of thousands of residents from Hong Kong, (something I agree with) then that should boost demand for housing stock.


As for construction companies, share prices have taken a hammering — Morgan Sindall and Kier, for example, both down by around 40 per cent from year highs.

Will shares recover? Buoyant construction activity is normally a sign of a strong economy. I suspect that the combination of remote working drawing people away from city centres and a weak economy will adversely affect construction.

On the other hand, as a part of its efforts to stimulate the economy post Covid, it may invest in infrastructure— that would be good for construction.

As for house builders, — if we see a crash in house prices that lasts for years post-Covid, then they will be hit. But the UK still has a shortage of homes. The house builders should continue to benefit from that.

These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Michael Baxter portrait photo
Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.

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