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The Lost (and Found) Markets

Contractors say goodbye to some markets, but there are new ones to welcome.

In the last two years we have seen the demise of restaurants, entertainment venues, retail outlets and other markets in the construction industry, largely due to the changes imposed by COVID-19 and the resulting measures that were taken.


At the same time, other markets have taken off, such as warehouses and health facilities.


We asked contractor members of the Association of the Wall and Ceiling Industry which once-profitable markets they felt would not come back, which ones they believe will flourish in the future, and how they are changing their business operations to accommodate these market developments.

Lost Markets

The drop-off in retail space construction seems to be general throughout the country, based on the responses we received.


In California, Dave DeHorn, chief estimator at Brady Corporation Los Angeles, Inc., waxes nostalgic about the great mall projects: “I think malls are gone. They used to be great projects: long, tall exterior walls, many with an exterior insulation and finish system as the exterior skin over metal studs and sheathing; usually without many openings, making for great production rates; foam shapes could be added easily to change a ‘boxy’ appearance into something more pleasurable to view; beautiful corridor ceilings and soffits on the interior made of metal studs, drywall, and even glass fiber-reinforced gypsum shapes. However, the internet has changed the way people shop.”


In Hawaii, Michael Mazzone, president of Statewide General Contracting & Construction, Inc., confirms what seems to be the biggest common denominator around the country: “With the increase of online shopping, retail, specifically malls, are going to be significantly reduced or eliminated. If malls are to survive, they will need to redevelop to something more than just retail.”


“We are seeing a dramatic drop-off in retail and small office-space projects over the last one and a half to two years,” says Ed Heberer, principal of American Wood Installers, Inc. in New York. “COVID and social unrest in the NYC markets are mostly to blame. More people are working from home and shopping online.”


John Hinson, division president of Marek in Texas, is responsible for an area that covers Atlanta, some of Tennessee and all of Texas. He says, “The biggest kind of project that has generally fallen by the wayside is the large, exclusively retail mall. They have been reinvented into mixed use developments where people live, work and entertain themselves. I don’t see the big retail areas with multiple, giant box stores such as Dillard’s, Sears, Macy’s and so on happening anymore.” Another type of project Hinson mentions is movie theaters. “In the last two years no one was going to movie theaters. But recently I have noted that people are really excited about going out to see movies. So, even though we’re not building movie theaters at the moment, they may make a comeback.”


“One thing I don’t know about that’s still hanging out there is traditional office space,” Hinson continues. “I don’t know what that will look like in the future, now that you have more people working from home and not needing that much space.”


“I’m not sure anything has been lost forever or even for the foreseeable future, though different segments may return more slowly than others,” says Greg Eckstrom, vice president of California Drywall in San Jose.


Pat Arrington, principal of Com-mercial Enterprises, Inc. in New Mexico, goes further: “We have not changed our business plan as far as types of construction, and areas where we quote work,” he says. “We have expanded into Los Alamos National Lab work, which requires specific clearances, as well as Sandia National Labs. We have cultivated trained workmen from several Indian Reservations, which allows us to quote projects that require 90% native workmen.”


Bill McKibbin, vice president of AIMM Inc., a Philadelphia-based furnishings installation company, notes, “In the world of office-furniture installations, projects to reconfigure existing spaces are becoming much rarer. The workspaces are very unitized and made up basically of glamorized tables,” he explains. “Common or collaborative areas are in fad now.”

Flourishing New Markets

We wanted to know which markets are flourishing and look like they will continue to flourish, and why.


In the furnishing installations market, McKibbin answers, “Demountable walls are very hot now and look like they will stay in vogue for at least a few more years. Also, as the pandemic fades and the hospitality industry awakens, hotel FF&E (furniture, fixtures and equipment) will make a comeback, including refreshing existing rooms and the construction of new property.”


In New York, “High-end residential and commercial projects are doing well,” says Heberer. “We are also seeing a very steady amount of hospital work as a result of new technology and an aging population.”


Hinson says most markets are flourishing in his area. “What is really increasing across the boards is multi-use developments where people live, work and entertain themselves, whether it’s in a suburban environment or downtown. Big corporations are coming in and building, and developers are building all around for all three of those environments. I also see a very strong continued building in the healthcare arena, and I expect that to continue,” Hinson says.


“All of the areas are continuing to grow,” he says. “Healthcare, education, hospitality, suburban environments, institutional buildings—I don’t see anything slowing down. In Texas, all those markets are definitely flourishing. If you put more people in suburbia, you have to have hospitals, education, religious buildings and so on. If you don’t expand out geographically from a city, you’ve got to expand vertically. We’re also seeing downtown high-rise apartments and condos going up in all our markets.”


Eckstrom says, “Because of housing shortages in California, we anticipate growth in the multi-residential segment of the industry. While there seems to be agreement that people will not go back to the old ways of working in the office, the extent of remote working (fully, hybrid, not at all) and its impact on office construction is unclear to us. That said, in Northern California, biotech construction, both campuses and tenant buildouts, is booming, and we continue to see significant office activity with large tech companies such as Google, Meta (Facebook), Apple, LinkedIn and others. In addition, we expect data centers, warehousing/distribution (including Amazon), and healthcare work to increase activity. The recently approved Infrastructure Investment and Jobs Act will provide $550 billion in new federal investments and should help create some growth in the nonresidential construction market.”


“Large owners such as Facebook, Amazon and Netflix are expanding in New Mexico and utilizing the solar power they can install on their sites,” says Arrington. “Vast amounts of land are available.” Other large projects in his region point to a bright future for construction in New Mexico.


“In Hawaii, it’s housing,” says Mazzone. “We always need more housing.”


“For us, it’s healthcare and education,” says DeHorn in Southern California. “We are aging as a nation and there will always be a need to provide healthcare. We continue to receive requests to bid on medical office-buildings and hospitals, as they are a necessity. These types of structures require a subcontractor base that knows how to build them, as they can be one of the most restrictive type of structures to build, based on the California Building Code and the California Department of Health Care Access and Information requirements. Schools such as Los Angeles Unified School District and higher-education facilities such as California state colleges, University of California campuses and private colleges will also continue to flourish. As the population grows, so does the need to educate our children. There seems to have been a steady supply of bond money for these programs over the years and campuses are replacing old, outdated buildings with new ones or just adding completely new buildings. These types of structures are almost as difficult as hospitals to build as they are regulated by the Division of State Architects who provide design and construction oversight for state-owned schools and colleges.”

Adapting Operations to Circumstances

Finally, we wanted to know how AWCI contractors are adapting their business approach to these changing markets.


“In the demountable wall arena, factory training is a must,” says McKibbin. “Also, specialized moving equipment and installation tools are essential. AIMM has invested heavily in both.”


Heberer explains, “For us, continuing to provide high-quality work and excellent service has been our mainstay. Making sure we control overhead keeps us in a competitive position.”


“What we are focusing on to adjust to these changes, because of the limited workforce available, is training our people and promoting a career development environment, both in the office and in the field,” says Hinson.


Eckstrom mentions a number of measures that California Drywall is taking. “Supply chain disruption has affected and will continue to affect us. The shortage of materials and longer lead times have resulted in project delays. Additionally, increased costs for our most common construction materials have had an impact on our pricing. We have been proactive in managing processes and operations as they relate to our supply chain to minimize delays and cost impacts. We work with our manufacturing and distribution partners to source and manage key materials (metal, board, insulation, etc.) strategically. We have also developed prefabrication capabilities, which include our 48,000 square foot prefab shop where we can manufacture track, studs and other metal products from our own coils. We continue to look at new sourcing strategies to reduce the current material supply volatilities.”


“Even before the pandemic, the construction industry was heading toward labor shortages,” Eckstrom adds. “The National Center for Construction Education & Research estimates that approximately 41% of the construction workforce will retire by 2031. This is one reason we have pivoted toward prefabrication, industrialized construction and automation, and in 2018 established a prefabrication division. We have made significant investments in plasma and laser cutters, press brakes, roll-forming equipment, CNC cutters and other manufacturing equipment, which is transforming the way we operate. With our focus on prefabrication and industrialized construction, we are addressing this issue head on. It also helps us consolidate schedules, reduce waste, increase productivity, improve safety and deliver higher-quality projects to our clients.”


Arrington says, “We purchased and stocked large quantities of steel studs (11 semi loads) at our operation site. We have been awarded many projects that required an immediate need for steel framing material. We employ apprenticeship training for new employees and to upgrade existing personnel. We also use equipment to reduce hours of work on site. This also reduces our workman’s compensation accidents exposure.”


“We have started to do more residential work, including renovations,” says Mazzone.


DeHorn explains, “We have been in the healthcare market since 2001 and have continued to have a staff that educate themselves every year on the ever-changing requirements of the CBC, HCAI and the DSA. We have specific estimators and project managers who follow the healthcare and education markets. We also have a great relationship with a few general contractors that also follow the healthcare and education markets. Our knowledge and relationship with our clients have made us a reliable subcontractor for these difficult projects.”


It’s an interesting story with many common denominators among AWCI member contractors around the country. A positive attitude and an intelligent and proactive approach to the inevitable changes in the industry (even though some of them have come as quite a surprise) keep the contracting business buoyant and flourishing.

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

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