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The Commercial Market: Will It Pick Up Again?

Shifts in the Way People Now Work and Shop Mean Changes Are Coming


Prior to the economic impacts of COVID-19, there was concern about the commercial construction market’s future in light of competition in the retail industry from online stores. Shopping malls around the country shuttered when anchor stores like JCPenney, Sears, Lord & Taylor and Macy’s filed for bankruptcy and/or closed hundreds of stores. Then the pandemic hit, and now people are shopping even more online, for everything from groceries to cars. Today, it’s not only shopping centers/malls that may not make a comeback; office buildings, restaurants, movie theaters, stadiums, bowling alleys and other entertainment venues are in trouble.

    

We asked AWCI member contractors for their personal observations, experiences, predictions and plans regarding the commercial construction market. We started by finding out how much of their work is in the commercial market. Over 50% of those who responded said their work was 100% commercial. Of the remainder, all but one said that more than 60% of their work fell into this category.


Decline in Commercial Work Ahead?

We wanted to know whether AWCI members were expecting a decline in commercial business, and the reasons for their answer.

    

“Yes, it is happening as I write this,” is the response from Richard Orstrom, president of RAM Acoustical Corporation in Pennsylvania.

    

Robert Abney, senior vice president–corporate at F.L. Crane & Sons in Memphis, Tenn., says, “We anticipate a lag in work in the second and third quarters of 2021, typical in a contested election year. With the concerns and restrictions surrounding COVID-19, we have watched market sectors in commercial office, retail and hospitality suspend planned projects to determine market needs once restrictions are lifted and any new regulations emerge from the pandemic. The Midsouth architecture and engineering community is projecting a fall 2021 push for return to construction capacity.”

    

Dan Thompson, president of Karsyn Construction Inc., in Fresno, Calif., affirms, “Uncertainty of potential funding issues created by an election year and the pandemic are leading to a slowdown of new development.”

    

Many others around the country echo these predictions.

    

Christine Luizzia-McGuire, president of Golden Crown Contractors, Inc. in Yardville, N.J., says, “At this time of the year we have had an increase of work, but it is mostly due to the price cutting and competitiveness we have had to resort to in order to keep our crews working. I see the industry work decreasing and many contractors fighting for work.”

    

“I expect to see the first half of 2021 very strong within the commercial arena,” says Doug Bixel, president of Forrests Sound Products, LLC, in Redmond, Wash. The slowdowns will hit in the second half. Prior to COVID-19, the commercial market was forecasting a slowdown starting late in 2021 and lasting through 2024. I believe that COVID-19 will add to the decrease in available work, as many have pulled funding from private projects. Working from home has reduced the need for Class A office space. Our overall backlog has decreased from the heydays of 2015–2018. We remain bullish in our ability to secure more than our fair share of the available work.”

    

Scott Christensen, Denver area manager of The Gallegos Corporation in Colorado, predicts, “We see a temporary slowdown due to the ‘COVID-19 lag’ from the shutdowns and associated anxiety over the summer, but the next 12 to 18 months should see a rebound to something approaching normal.”

    

“The pandemic has changed the whole concept of working in a commercial building,” says Adam Barbee, estimator/project manager at Daley’s Drywall in Campbell, Calif. “Businesses have realized that they have truly been profitable without the commercial space, having their employees work from home. On the other hand, many businesses held off on projects due to the pandemic, which means there are still plenty in the works, which may lead to several years of commercial boom.”


Backup Plan?

If the commercial market does not make a full recovery, do AWCI member contractors have a backup plan? Are they exploring other markets or specialties?

    

“We have already shifted focus to seek out more opportunities in the residential market and the farming/food service industries,” says Ed Dougherty Sr., general manager of Tedco Insulation, Inc., in Kennett Square, Pa., “We are also looking closer at the add-on services we have always provided but never had time to develop fully into a main source of revenue.”

    

Joe Jean, vice president of J&J Acoustics Inc. in Fresno, Calif., plans to “… downsize, look for public work opportunity, diversify and solicit a new customer base.”

    

Jesse Vigil, president of Mid-Valley Commercial Construction, Inc. in Salem, Ore., does not expect a decline in commercial work because, he explains, “We do a lot of semi-negotiated work and have a good backlog for next year.” Nevertheless, he has a backup plan: “To diversify into other scopes and markets: Portland, Vancouver, Bend and Seattle.”

    

“We are blessed to be in the Seattle marketplace as it will remain stronger than the rest of the nation,” says Bixel. “But our backup plan is to commit more energy to industrial sound control and other direct-to-customer markets. I can easily see this portion of our backlog increasing to 25%.”

    

“We will utilize the commercial leads and try to bid to new clients,” says Luizzia-McGuire. “We have already started branching out, providing millwork installations and other services.”

    

Michael Mazzone, president of Statewide General Contracting & Construction Inc. in Hawaii, has had to abandon his pre-COVID plan to diversify into commercial work. “My strategy now is to expand in the federal market, which will be the only area with the money to do the work,” he says.

    

Christensen says, “We are diversified into the residential and industrial markets and look to meet our revenue goals by whatever work presents itself.”

    

“We are looking at more public work, schools, etc.,” says Luke Beach, president of Independence Commercial Contractors in Michigan.

    

Bill Fritz, president of Mission Interiors Contracting, LLC in Texas, expects new work on “high-rise condominiums due to office building conversions; malls and shopping centers will transform into healthcare facilities, due to their centralized locations, with appropriate electrical/communication grid in place; fast food restaurants will thrive; strip-center conversions to warehouse facilities will be made for UPS, Amazon, etc. due to location.”

    

“We are reaching out on design/build projects and conversion from wood to CFS projects, developing relationships with designers and GCs,” says Rick Wagner, president of Richard Wagner Enterprises LLC in Lexington, N.C.

    

Many contractors have not required a backup plan because they are satisfied with their existing approach. This will see them through any decline in commercial construction.

    

For example, Abney says, “We possess technologies that can be applied to housing, multifamily, healthcare facilities and those associated support markets that will allow us to shift focus if the commercial markets take an extended pause. We will also take the time to invest in our people through training, and coach to reduce wasted materials and movements by increasing our lean construction knowledge.”

    

“Our staff constantly reviews office and field procedures to be more productive, which has proven very cost effective,” offers Ed Heberer, principal at American Wood Installers in New York. “Being the best service-and-quality subcontractor is our best model and backup plan to date.”

    

“Our typical approach is to be opportunistic and stay on the lookout for whatever openings present themselves,” explains Christensen. “New products, renovations, joint ventures—whatever we need to do to keep the workload flowing.”

    

Orstrom thinks "2021 will be a comeback year—probably not as strong as 2019, but it appears the owners are looking hard at moving ahead with projects. We are not exploring any other ideas as we feel it will come back.”

    

Dave DeHorn, chief estimator at Brady Company, Los Angeles, Inc., says, “We have a backlog that takes us into early 2023, sufficient to keep the business moving forward. We have always run a tight overhead in our company, which helps when the economy slows down as we do not have to lay employees off. We are seeing opportunities in hospitals, testing facilities and even bringing past hospitals that were shut down back to life again.”

    

Even though he is expecting work to slow down, Steve Crist, president of John H. Hampshire, Inc. in Maryland, does not feel the company needs a backup plan. “We have survived 110 years (35 for me personally), and we will take the good with the bad.”

    

Adam Navratil, partner/CFO at J&B Acoustical, Inc., in Mansfield, Ohio says, “Our plan during exceptional years is to update equipment and facilities so we are ready for slower markets. We have always had a range of contract sizes and are used to the ebb and flow of typical market changes. We are planning to panelize as much framing as we can in order to obtain more production out of smaller crews.”

    

Barbee says, “We are exploring prefabrication, which one day will dominate the market, commercial and residential. Ultimately, the client receives a great package, and we remain profitable as a result of labor savings.”


The Future

Are there other construction segments at risk of contracting or changing dramatically? Are there any that are likely to come into existence or expand? We received many insightful and interesting responses on this subject. Here are a few of them:

    

“We feel retail brick and mortar will remain about the same as pre-COVID-19 once the vaccine is available for the general population,” Vigil predicts. “Customers still like to touch certain products, such as clothes, furniture, cars, etc. before buying. We see medical, highway and colleges expanding due to state and federal funding.”

    

In Jean’s estimation, “Retail, malls, hospitality, restaurant and some commercial office space will be affected negatively. Data centers, high tech, warehouses, infrastructure and distribution centers should be expanding.”

    

“Retail might not come back to its past glory days,” says Heberer, “but commercial space redesigns of gathering and workspace will generate needed new interior work for years to come.”

    

Navratil believes “a good percentage of the population living in large cities will be moving to smaller and quieter communities that offer lower-stress living conditions coupled with lower costs of living since many will continue working from home indefinitely. Smaller communities will see an uptick in service-oriented commercial projects and larger schools with remote learning technology integrations.”

    

“Large malls will be shutting down or not expanding at all in the future,” predicts DeHorn. “We are, however, seeing a surge in existing or new warehouse spaces being repurposed—new tenant spaces being built for those services that receive orders online, shipping them to warehouses and then distributing them to offices or homes.”

    

Thompson agrees: “So many employees working from home will create a surplus of available office space that will need to be converted into multi-use spaces, which will help commercial construction. Similarly, delivery services are at an all-time high due to so many working from home, which will lead to commercial development of supply facilities and infrastructure to meet the changing demand.”

    

“Perhaps the larger retail outlets will redesign themselves into smaller boutique stores with a larger online ordering system that could be shipped or picked up the same day in major malls only,” says Dougherty. “Major malls like the King of Prussia Mall in Pennsylvania and the Mall of America in Minnesota will survive as a tourist/shopping destination that people will travel from out of state to visit. They will have to offer incentives for retailers to stay and possibly repurpose some of the space into hotel or residential occupancy. The smaller regional malls will suffer the most and fail to keep top-of-the-line retailers as tenants. I see many such properties being turned into residential developments.”

    

“Another market we are busy in is education,” says Mazzone. “With many locations having to tighten their budgets, education will be one of those areas that will have big changes. Schools will be smaller and focus on special education and remedial learning.”

    

“I think the office as we know it is in decline,” says Wagner. “Workspace and working from home is an emerging market. Prefab and panelization is a boom for the time being, but it is fast becoming oversaturated with fabricators.”

    

“Infrastructure rebuild should do well due to necessity and reduced labor costs,” says Fritz. “Demolition to remove unoccupied buildings from the tax rolls will occur, as will home building for a short while, until materials cannot be replenished or afforded. Home renovation to accommodate home offices will see increased demand, as will electrical/communication grid expansion.”

    

To summarize, AWCI member contractors on the frontlines of building, and many of whom do most of their business in the commercial sector, don’t think commercial work is going away—but it will likely see major changes thanks to the lessons have been recently learned.


David C Phillips, a freelance writer and photographer, is an original founding partner at Words & Images.

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