The construction industry in Israel has been impacted by the pandemic, which is expected to affect growth across key sectors over the short to medium term, with a prolonged recovery.
Israel Market Review
With the final quarter of 2020 approaching, Shay Dahan, Director, and Ashley Baum, Senior Cost Manager at Linesight, reviews the Israeli economic and construction industry performance to date and the outlook for the near future. what we can expect in 2020 and beyond.
Israel has been hard hit by COVID-19, with the economy recording its worst performance in more than 40 years in Q2 coupled with the CBS (Central Bureau of Statisitcs) reporting a 28.7% decline. This follows a 10.1% contraction in Q1, after 3.4% growth in the second half of 2019.
Recognised as a ‘start-up nation’, it is interesting to note that recent surveys by Start-Up Nation show that the majority of start-ups didn’t lay off employees or send them home on unpaid leave, but rather froze hiring. It is Israel’s innovative capacity which will turn the current crisis into opportunities for many start-ups. In the first half of 2020, US$5.25 billion was raised in funding, which represented 312 deals in the high-tech industry, according to IVC Research Center. It was also noted that while things appear to be ‘normal’, the full magnitude of the economic impact may be felt in Q3 and Q4 of 2020.
Israel’s high-tech landscape has been largely unscathed in comparison to other sectors of the economy. The ripple effect from the pandemic has not been felt so far in the sector, but according to Research and Analysis at Start-Up Nation Central, a slowdown is expected as the pandemic continues.
Industrial production increased 8.5% year-on-year in June 2020 - the biggest gain since February, prior to the coronavirus crisis - helped by the relaxation in lockdown restrictions. Manufacturing output rebounded sharply (8.7% versus -0.7% in May), while mining growth slowed (6.4% vs 13%). Meanwhile, business confidence in Israel increased to 4.8 points in August from -0.5 points in June of 2020.
As noted in our March 2020 edition of the Knowledge Center, foreign investors actively seek new investments beyond the Mediterranean Sea. It is in those territories that innovation investment is being cancelled or delayed from corporations in the US and Europe due to financial difficulties. In a recent report, the Bank of Israel revealed that as of the end of May, 4.2% of tech workers in the country had been let go. The Israel Innovation Authority took immediate action as the coronavirus unfolded by implementing several initiatives and dedicated incentive programmes, where companies can receive up to US$4.3 million. These programmes are designed to provide the necessary support to help high-tech companies in all stages and sectors.
CBS indicated a significant increase in the percentage of workers returning to the labour force, increasing from 70.6% in May to 83.4% in June 2020. The food and beverage service industry has taken the brunt of the pandemic, with 45% of its workforce on unpaid leave, in comparison to an average of 9% for all other industries.
Employment rate by industry
The construction industry in Israel has been impacted by the pandemic, which is expected to affect growth across key sectors over the short to medium term, with a prolonged recovery. Residential and commercial are going to be worst affected, but infrastructure construction is expected to maintain momentum, supported by public spending.
According to Constrack360, a Compound Annual Growth Rate (CAGR) of 10.7% is forecast for the Israeli construction industry, to reach ILS 184.5 billion by 2024. In value terms, residential recorded a CAGR of 7.1% during 2015-2019. The commercial building construction market in value terms is expected to record a CAGR of 12.3% and a CAGR of 5.3% was reported for infrastructure in 2019.
As of the end of August, Israel has introduced a green building regulation to account for all structure types, having been voluntary since its main green standard was implemented in 2005.
With Israel recording its worst performance in over four decades in Q2, it is fair to say that COVID has severely impacted its economy. However, as a nation that is recognised for its innovative capacity, with a strong high-tech landscape that has been relatively unscathed thus far, and given the initiatives and stimuli introduced, Israel is already showing some tentative signs of recovery. Looking to construction and real estate, some sectors will be heavily impacted, while infrastructure is expected to be propped up by public spending. As noted by Innovate Israel, "a crisis is an opportunity” that creates the perfect environment for innovation and entrepreneurship to come up with smart-tech solutions to overcome current challenges.
Contributor: Shay Dahan, Ashley Baum