It’s a sign of the times, and not a particularly good one. WeWork, the flexible office space management company with 600 locations across the country, filed for Chapter 11 bankruptcy on Nov. 11, 2023. And while some extraneous mitigating factors may have influenced this unexpected corporate action, it should nevertheless be recognized as a symptom of a much more troubling development. Over 20% of all office space nationwide remains empty since the pandemic recovery.
Clearly, this slump in the light commercial real estate segment of our straining economy chiefly owes to the trend of office employees remaining off site and electing to work remotely, whether from home or from the local coffee shop. And while there may be a number of overall benefits emanating from the recent Zoomer phenomenon (see Estimator’s Edge, October 2022), you don’t need AI to predict how this will impact the construction industry, and commercial drywall in particular.
Statistics show that tenant improvements comprise upward of 18% of all commercial construction activities. Pair that with the fact that the lion’s share of all tenant improvement work falls within the scope of the drywaller, one can only imagine the damage done to those light commercial subs who depend on TIs for their survival. Consider that a typical TI job consists of basic interior metal-stud wall framing, drywall, insulation, paint, a standard acoustical ceiling component and little else. (OK, a bit of electrical and plumbing, for the nit-picky reader.) Clearly, this is a simpler scope, devoid of the more sophisticated work done by subs who opt for larger projects that involve heavy gauge exterior framing, EIFS, fire-stopping, cloud ceilings and other specialty components—not to mention panelized exterior skins. It stands to reason that this dearth of TI work can mean the starvation of those light commercial subs who are evidently addicted to the low-hanging fruit, along with their estimators who perform in the security of a simple comfort zone.
But unfortunately, there’s more bad news for commercial drywall contractors: TI subs are not the only group affected by this decline in office space activity. Those aforementioned heavy-hitting subs of the more sophisticated persuasion will soon be impacted by a cutback in construction of new core-shell projects slated for office space occupation. In fact, a recent article in the Wall Street Journal indicated that commercial real estate foreclosures nationwide are on the rise, an apparent death knell for a significant segment of the construction industry.
At the risk of appearing to be the hand-wringing doomsayer, I would be remiss if I failed to point out that this office space slump couldn’t have come at a worse time for commercial contractors. With the average annual inflation rate over the past three years logging in at about 5.5%, fuel prices lingering at record highs and logistical roadblocks mounting as supply chains unlink, the general picture of production in the country is not very pretty. And as we have all seen, the vanguard for the economic climate always seems to be the construction industry.
Ray of Hope
Is there a remedy for commercial drywall subs regarding these rather disastrous developments? Clearly there’s no miracle cure for economic decline. We’ve all seen these slumps come and go with time.
But one ray of hope in the short run for commercial contractors lies with a penchant for flexibility. From building landlords right down to light commercial drywall estimators, the key to survival in tough times has always been the ability to adapt. Savvy owners of existing buildings will try to convert space to alternative uses. And while they may battle with regulatory restrictions in some cases, many landlords have already initiated conversions from office space to high-end condos, medical office buildings and college classrooms.
This is good news for light commercial drywall subs especially, as such conversions are not beyond the reach of the less sophisticated outfits, and their estimators will only be marginally compelled to adjust their approach to their work.
As for the larger, more advanced drywall contractors, their ability to pivot lies with the diversity of their scope and how it applies to multiple types of construction. Then too, their sheer volume of work implies longevity—an indication that they have weathered these storms before, usually by simply adjusting their focus. Consequently, astute contractors will shift an emphasis from core-shell office projects to whatever segment of the industry is currently thriving in their area—be it health care, hospitality, public projects or entertainment—with a remarkable ease of transition.
And while this current decline in office space activity may prove to be a serious blow to commercial drywall contractors (and their estimators), with a little exercise of flexibility, it needn’t be a fatal one, even for those light commercial drywallers who currently perform such work exclusively.
