Deferred development // Commercial building activity is tempered by a persistent pandemic

Delays, cancellations and uncertainty swirl around construction projects—whether it’s fallout from COVID-19 restrictions or concern about equipment and materials tied up in supply chain bottlenecks.

The majority of architecture firms continued to report a decline in billings in August, according to the Architecture Billings Index from the American Institute of Architects. A main reason cited for the decline is a reluctance to commit to new projects due to a continued resurgence in COVID-19 cases around the country. “Conditions remained very weak at firms with a commercial/industrial specialization, and have stabilized modestly at firms with an institutional specialization,” reports the AIA.

Health care is another sector where construction priorities have shifted near term. Travis Burggraf and Justin Franklin, senior directors at FTI Consulting, say that “the sudden influx of critical-care patients related to COVID-19 have left hospitals across the country having to develop an immediate strategy to meet the expected patient surge. This strategy likely includes construction or modification of existing departments and systems to provide the necessary number of critical-care beds. Common solutions have included converting operating rooms to extra patient beds and converting post-anesthesia care units to function as ICUs.”

Roller coaster

Total construction starts fell 7 percent in July, with most of the decline in the nonbuilding segment, according to the Dodge Index. Just for July, the level of starts for nonbuilding projects fell 31 percent but all categories posted flagging numbers, with a particularly rough ride for utilities and gas plants, which declined 58 percent following large gains in June.

Compared to 2019, year-to-date 2020 nonbuilding starts were down 20 percent, although highways and bridges were a small bright spot with a 4 percent gain from January to July. Several large projects also broke ground, including the Whistler Natural Gas Pipeline and the $421 million widening of Interstate 26 from Little Mountain, South Carolina, to Irmo, Texas.

Dodge Data & Analytics’ numbers indicated a mild improvement in nonresidential building from June to July, led by gains in hotels, warehouses and office buildings. Nonresidential building activity is 25 percent lower in the first seven months of 2020, compared to 2019, although ground was broken during the month on a $400 million terminal at George Bush Intercontinental Airport in Houston; the $377 million Hyatt Regency Hotel at the Salt Lake Convention Center; and a $337 million renovation of a terminal at Los Angeles International Airport.

“The July decline in construction starts should not be interpreted as a setback on the sector’s road to recovery,” says Richard Branch, chief economist for Dodge Data & Analytics. The drop in public works could represent a settling back in activity following a [period during] which some projects broke ground earlier than expected to take advantage of the fewer cars on the road during the shutdown.”

Upcoming projects are still being canceled and postponed amid an ambiguous future. The growth in construction jobs in July was limited entirely to the residential building and specialty trades, which are low-volume consumers of metal products.

The Associated General Contractors of America’s chief economist, Ken Simonson, expressed concern that many nonresidential projects could be in jeopardy, “following the completion of emergency projects and ones begun before the pandemic. Projects that had been scheduled to start this summer or later are being canceled while few new facilities are breaking ground.”