Nevada’s commercial builders — the companies that build about everything except single-family houses — weathered the first months of the COVID-19 pandemic in passably good shape. But, questions linger about how well the industry will fare if the state’s economy remains weak into the early days of next year.
After some bumps during the worst of the pandemic’s early days, most major, longterm construction projects once again are back on track, says Guy Martin, president of Martin-Harris Construction in Las Vegas.
“The bulk of our clients stopped, reassessed the landscape and are now moving forward,” Martin says.
But some short-term, high-intensity projects — the sort of construction that’s completed in 90 days by developers who plan to generate revenue quickly — have been casualties of uncertain markets.
“In this environment, there isn’t a lot of tolerance for poor decisions in the short game,” says Martin.
Tom van Betten, vice president of strategic partnerships with Matter Real Estate Group, believes about 20 percent — maybe as many as half — of the commercial construction projects in the Las Vegas market were either delayed or halted entirely as a result of the pandemic’s disruptions.
Many are back on track, but others remain on hold while their owners decide whether new construction makes sense in a rapidly changing market. Instead of building a new structure, some are looking at renovation of a bargain-priced existing property purchased from distressed owners.
Jeff Northrup, senior vice president of pre-construction at Las Vegas-based SR Construction, sees continued caution in the market.
“Many of our clients are taking a very conservative, wait-and-see approach to new projects,” Northrup says. “We see some strength in some aspects of healthcare, although the uncertainty has affected this sector negatively as well.”
Retail and hospitality-related projects in the Las Vegas area have been hit hard, Northrup says, and he doesn’t expect either sector to rebound quickly.
The construction market in northern Nevada, meanwhile, presented a mixed picture at mid-year, says Michael Russell, chief executive officer of United Construction Co.
More than 3 million square feet of industrial buildings — both speculative and build-to-suit projects —were in the pipeline. Among them was a complicated distribution facility that United Construction is designing and building in Reno’s North Valley for Uline, a structure that will be one of the largest buildings in northern Nevada.
United Construction is completing tenant improvements within an existing 436,368-square-foot shell for Uline, which is a distributor of shipping, packaging and industrial supplies. Simultaneously United is building a 468,000-square-foot expansion that’s connected to the first building shell.
Making things even more complicated, United is designing, permitting, and building the project in multiple, overlapping phases to accelerate completion by next spring. New industrial projects continue to bring new families to the region, and the Washoe County School District has a large number of building projects under way to deal with population growth. Even more are planned. Numerous big apartment complexes are under construction, and public facilities such as The Jennifer M. O’Neal Community Ice Arena being built for the non-profit Reno Ice add to the mix of construction work.
New retail projects in Reno and Sparks, however, ground to near-halt as the result of the pandemic, and existing retail space may be repositioned into new uses.
“This sub-sector will be questionable until the full effect of the coronavirus has been realized,” Russell says. Similar uncertainty has dampened plans for office projects.
Planning in Pandemic
Worries about the future course of the pandemic, the strength of the nation’s economy and the impact of this year’s election weigh heavily on the minds of construction executives across Nevada as they plan for the next year.
Executives at Matter Real Estate Group closely watch The American Institute of Architects Architectural Billing Index, an indicator of future building activity. Since last March, the index has been pointing to a sharp decline in construction activity nine to 12 months from now.
Aaron West, chief executive officer of the Nevada Builders Alliance, a statewide industry group, worries about the effects of general weakness in the state’s economy on the construction sector. Rising vacancy rates, more evictions, and increased numbers of business closures would weaken the ability of developers to finance new commercial construction projects.
“The biggest challenge long-term by far is lending,” he says. “Will banks work with existing landlords to restructure struggling assets and will new projects be able to get financing at some point?”
But Northrop expects as COVID is brought under control and uncertainties about the nation’s election settle out, pent-up demand could boost construction activity next year.
The market for government projects has remained somewhat stronger than the market for private construction this year, notes Shawn Danoski, founder and chief executive officer of DC Building Group in Las Vegas. But he expects that could change rapidly during the next six months as current projects wrap up and cash-strapped government agencies put a hold on further work.
In Northern Nevada, United’s Russell expects that commercial construction activity will remain steady in the next year. More e-commerce facilities will be built to meet the demands of consumers who are shopping online, he says, and Nevada will continue to attract a steady stream of industrial users who want out of California.
Some commercial builders across Nevada are casting a wider net to capture business in the new environment. DC Building Group, to cite one example, landed contracts for multi-phase retail projects in Phoenix, work that diversified its revenues beyond its base in Las Vegas. United Construction, meanwhile, is ramping up its design and preconstruction services to help build-to-suit clients who want fast-track delivery of a new building.
“Two years ago, we had three estimators and two architects. Today, we have five estimators and four architects, and we are currently looking to hire another estimator and another architect,” says Russell.
The pandemic itself may boost construction activity. Martin says the sweeping social changes wrought by the battle against COVID-19 are likely to create opportunities for nimble construction companies. Call-center facilities that were built to house hundreds of employees, for instance, might be repurposed into other uses as social-distancing requirements and the rise of working from home limit the amount space that’s devoted to call centers.
Already, some projects that are moving forward reflect a pivot toward robust health and wellness systems and protocols. For example, Matter Real Estate Group is focused on healthier air handling systems, touchless access, and overall wellness protocols in its $400 million mixed-use project, UnCommons, that’s under construction in southwest Las Vegas. The company believes health systems will be a particularly important selling point as it markets more than 500,000 square feet of office space at the project.
For the moment, however, COVID-19 has brought more headaches than opportunities to builders.
Delivery problems have arisen with some construction components that rely on the global supply chains that were disrupted by the virus. Martin notes, for instance, that a passenger elevator may be almost entirely American-made. But if the elevator’s operation relies on three tiny computer chips manufactured in the Far East, installation of the entire unit can be stalled by the pandemic-related delays in supply chains.
Although SR Construction encountered some supply-chain disruptions caused by the pandemic, Northrup praises the suppliers who overcame those roadblocks.
“Given the tremendous challenges posed by the pandemic, it is truly amazing how American ingenuity can overcome almost any hurdle,” he says.
Materials costs, however, have become even more difficult to predict in the new environment, says Danoski. Prices for some high-demand materials have risen, but project cancellations mean that other materials are readily available.
“This is causing an unstable prediction for material needs,” he says. “In many cases, materials are being ordered early and placed in storage months before they are needed so that a project can lock in the costs and avoid the risk of uncertainty.”
And Russell notes that strong homebuilding activity across the nation this summer increased the demand for lumber and plywood, pushing up prices for wood products for all types of construction.
But rising costs have been a headache for the construction industry for a while.
“Regardless of the reason, over recent years, construction costs have risen, and it is making it more and more challenging to help clients bring their project dreams to reality,” Northrup says.
Another challenge that arose from the pandemic: Ensuring that subcontractors are available.
“Some subcontracting firms with small office staffs have been completely shut down due to positive test results. This has been difficult in keeping project schedules moving forward,” says Danoski.
On the other hand, good people are easier to hire these days, at least in southern Nevada, where construction executives say they’re seeing far more resumes from quality candidates now that some projects have been cancelled. That’s not the situation in northern Nevada, where Russell says the market for skilled construction workers has remained tight throughout the pandemic. While the construction industry historically has focused on worker safety, COVID-19 requirements in the workplace added new issues.
“Managing our projects during a pandemic and the complexities of safety, supply chain logistics, permitting and entitlements creates significant headwinds each and every day,” Van Betten says, noting those complexities are all the more challenging in an uncertain economy.
Even though construction companies have been designated as essential businesses and allowed to keep operating through pandemic shutdowns, some early rules would have required construction workers to keep six feet apart on the job. That would have been a clear impossibility for many construction tasks, and the industry convinced regulators that use of personal protective equipment and careful planning would obviate the need for those rules.
“The entire situation is dynamic, at best, but we are thankful for the thoughtfulness and diligence of associated agencies,” says West.
West says officials of local government also moved quickly to provide new tools such as digital issuance of building permits and video inspections.
“Without this we would not have been able to continue,” he says. “The creativity and understanding from everyone involved has been tremendous.”
The track record of construction companies has proven that the confidence of regulators was well-placed. “The industry as a whole has responded to the challenges of the pandemic, as evidenced by the very low rate of positive cases on jobsites,” says Northrup.
But even as construction companies learn to navigate the new rules and the ways that the market changes with the pandemic, competition among builders is likely to remain intense.
“We still all have the same waters to swim in,” says Martin. “We just have some new rocks to swim around.”