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From The Desk Of BCC President: How Will COVID Impact Construction in 2021?

Since late March 2020, our industry has experienced varying impacts due to COVID-19. While construction operations have largely been considered essential across the country, certain markets and sectors are feeling COVID repercussions more than others.

Through my peer group participation, I have personally heard from contractors focused on hotel, office and retail construction that many projects in planning have nearly halted. Others operating in areas like Denver and Dallas shared how they have seen a significant decline in construction starts due to projects being postponed or canceled. Bozzuto Construction has been very fortunate in that the markets and sectors that we serve have been less impacted to date. As a result, we continue to start projects and experience minimal delays in our DC/MD/VA, PA, and Boston, MA markets.

Overall, project pipelines have stayed somewhat steady, which is one of the main reasons I remain positive in our industry’s ability to recover, as we have in previous downturns. Also, based on the Architecture Billing Index, architectural firm spend – which is considered the tip of the spear for determining future work – will pick back up in 2021, bringing more opportunities to build.

However, due to COVID and the shifting of the capital market landscape, getting deals done will require creative solutions from developers, architectural firms, construction companies, and subcontractors alike. In other words, we must all work together.

In the New Year, there will be more pressure than ever for construction numbers to go down in order to make a deal work. So, to do our part, we must truly understand the key cost drivers that most significantly impact our industry, which are materials and labor. Between a global pandemic, a volatile lumber market, and pressure on an already strained labor force, what does this mean for getting deals done in 2021?


Materials

Based on recent discussions, our subcontractor base is projecting to finish the year strong. Subcontractors noted that while some projects pushed from their originally planned start dates due to COVID, some of these jobs began gaining traction in recent weeks.

Even with projects moving forward, forced government shutdowns of large plants like major lumber mills at the onset of COVID are still impacting material pricing, and have created delays for supply chains across the nation. Time will only tell, but the recent election may also play a part in pricing and availability, as buying American materials was part of the President-Elect’s platform.

In general, many of our subcontractors agree that lead times for critical materials continue to increase due to COVID. When it comes to material costs, there are varying opinions across trades. However, the consensus seems to be that annual material cost increases should be in-line with previous years, which ranged from 3-5%.

According to our subcontractors and vendors, we should keep the following materials top-of-mind, and watch them closely.

  • Lumber: the lumber market has dropped from its peak in mid-September, but we are expecting an increase again in the spring. We do not expect a return to pre-COVID levels for the next 8-12 months.
  • Doors: door material has increased 10-15% and we expect another 10% price increase and extended lead times on Masonite pre-hung doors.
  • Steel: pricing for steel is currently holding steady.
  • Windows: there has been a 5% increase in windows.
  • Roofing: roofing material has increased 5-8%.
  • Plumbing: there has been a slight increase in plumbing fixtures and a 20% increase in PVC material.

These increases in costs and delivery delays obviously impact the numbers we receive across trades. Our subcontractors are optimistic about their immediate backlog, but there is concern about the second half of 2021. While they are currently experiencing strong pipelines due to starts shifting into late 2020/early 2021, majority of the subcontractors we spoke with can take on more work, as they are seeing a decrease in bid opportunities and stiffer competition. This has the potential to bode well for developers, as this is likely an indicator of upcoming cost decreases.

Key takeaway: In the DC/MD/VA market, pricing has stayed relatively flat since COVID, except for lumber. In the New Year, we anticipate this trend to continue, with minimal material increases, followed by price softening in the Summer as subcontractors more aggressively try to solidify their pipelines. We anticipate this will happen sooner in the suburban PA markets that we serve. However, if the architectural spend increases as predicted in 2021, and more bid opportunities arise, subcontractor’s backlog concern could begin to subside.

Labor

Manpower was an issue prior to COVID, and will remain an issue moving forward. While many say they can find general labor due to the slowing in other construction markets like hotel and office, they are still struggling to find skilled labor and qualified supervision. This lack of labor impacts more than our people on the jobsites. Take delivery drivers for example. A decrease in qualified drivers to complete deliveries has affected freight overall.

Regardless, the construction industry is still hiring. According to a report released by the U.S. Bureau of Labor Statistics early last month, construction-related employment increased by 84,000 jobs in October. The study also noted that our industry has recovered almost 72% of the 1.1 million jobs lost in March/April of this year. However, I must note that in our (Bozzuto Construction) specific market we have not seen a large number of layoffs or furloughs as a result of COVID.

Experts also indicate that minor employment growth should resume through the end of this year thanks to sectors like multifamily and infrastructure, which are projected to remain strong in 2021. Additionally, in the New Year, the President-Elect’s plans suggest a strong concentration in the building/improvement of existing transportation structures, housing and education facilities, which would further boost industry employment.

Key takeaway: Even though the slowing of some sectors may result in more workers, the lack of skilled labor in the construction industry remains an issue. But, if predictions are correct, the vow of the new administration to invest trillions into building, coupled with their plans to reassess immigration and labor agreements could potentially help construction’s labor shortage, and aid in re-strengthening our industry. Even still, mentoring and developing skilled labor takes time – years not weeks. This said, we must push to provide training opportunities for our existing and incoming workforce to gain the experience and qualifications needed for specialty labor.

Final Thought

From the virus to the presidential election, navigating 2020 has been full of twists, turns, and ambiguity. The mixed messages we have received over the past several months make it difficult to predict exactly what a post-pandemic world looks like or when that might be, but the future of construction is promising. As long as we remain vigilant and plan accordingly for COVID-related impacts on materials and labor, there will be opportunities for a strong 2021.

With these opportunities will come challenges and the need for collaboration. But as developers, architects, general contractors, subcontractors and manufacturers, the concept of teamwork to overcome obstacles is nothing new to us. As I mentioned previously, we must keep on working alongside one another to come to terms and agreements that benefit each of us. If we do this, we will be successful.

Mark Weisner
Mark Weisner
President, Bozzuto Construction

Learn more about Mark Weisner

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