Steady Construction Trends Indicate Economic Recovery
Q&A with Three Rivers Corporation
By Amy DeGeer Roten
When it comes to the strength of our economy, the construction industry is the candle in the coal mine.
Construction industry data is used by market experts, government agencies, and business leaders to support economic forecasts, market research, and financial decision-making. Construction directly impacts the economy because it creates jobs. It affects the growth or decline of other industries as well, including retail, hospitality, real estate, manufacturing, education, and others.
No one can truly foresee what 2021 will bring. However, we can look to the construction industry for economic trends. To do so, I spoke with Three Rivers Corporation (TRC) President Jon Lynch about the state of the commercial construction industry, how COVID-19 impacted Three Rivers Corporation, and his thoughts on what the industry trends indicate for our local economy.
MBA: How did COVID-19 impact the 2020 commercial construction market in Midland?
Lynch: I think the very first thing we saw, February through April with the onset of COVID-19, was that key market sectors were focused on conserving capital. Numerous projects in the development pipeline were canceled or delayed. Customers held off on construction jobs to save money, and in the Great Lakes Bay Region we had 98 suspended commercial jobs so we experienced a significant negative financial impact.
MBA: Have you seen a softening or decline in commercial starts? If so, which market segments were least affected and most affected?
Lynch: Comparing the March to October periods in 2019 and 2020, the 2019 activity was very robust and diverse. Activity in 2020 narrowed and the weakest components of our commercial markets were the restaurant and hotel sectors. With project sponsors not having access to their customers, there was definitely a chilling effect. Our strongest level of activity was in the medical sector which makes sense given the intense pressure our healthcare systems have been under during the pandemic. Overall, there has been a decline in commercial starts.
MBA: How have COVID-19 disruptions impacted Three Rivers?
Lynch: The most important challenge was securing the health of our employees and our customers by expanding our health and safety protocols. We are monitoring individuals’ health every day, and we have all the mechanisms and a response plan in place for partners and TRC employees.
MBA: Which COVID-19 disruption was the most severe?
Lynch: Managing remote work teams is more complicated. It was initially difficult to get collaborative work done. Supply chain disruption was also severe. For example, glass distributors were shut down, then very behind. Procuring windows and architectural panels for buildings was disrupted which had a significant effect on project scheduling. The disruption also caused certain material pricing to be high and availability to be low, such as lumber.
MBA: How has Three Rivers responded to all this?
Lynch: Everywhere possible, we moved to remote work which enabled us to keep certain parts of our business moving forward. While commercial projects were shut down, critical infrastructure projects could continue to move forward and make progress. Again, we put a huge emphasis on safety while serving our essential services customers.
MBA: What is new in the commercial construction industry with demand in the Midland market? Is there anything related to technology, safety, materials, or modular construction?
Lynch: We made a direct investment in platforms that better integrate work. Working remotely can be challenging to the design-build process which thrives on synergy. For quality design build to be executed efficiently and effectively, you must have continuity and communication. These are critical so we spent the time to find platforms that integrate work from design to project completion.
How people interact with space has also changed which is important to projects in our design pipeline. Customers are thinking differently about spaces, including where and how manufacturing or assembly takes place. Human interaction and proximity affect space as well and influence what buildings look like – this has created design changes.
The use of space has also changed from a structural perspective. For example, a predominately dormant employee parking lot can be repurposed. With the onset of advances in mobility and driverless technology, your vehicle may someday be summoned from somewhere offsite and drive itself to pick you up at the door. This allows the parking lot to be repurposed, leased, or sold for new construction.
MBA: What is the forecast for the commercial construction industry?
Lynch: The Architecture Billings Index (ABI) is produced by the American Institute of Architects Economics & Market Research Group. It tracks architecture firms’ billing activity and indicates whether billings grew, declined, or remained flat. Architecture billing impacts construction on a nine-to-12-month cycle.
For commercial design and construction, the ABI Billings Index for October 2020 was still declining but leveling off. Design contracts have gone up since October and inquires have been the highest since January. In the Midwest, design billings are even and activities are strongest in the residential market. The commercial market is even and the institutional market (public buildings such as schools) is weak.
Within the Great Lakes Bay Regional market, home-building demand looks strong. Residential real estate inventory is low and the market is strong for both new construction and renovations.
For micro-markets in the commercial segment, robust brands or product lines will continue to see investment. These include large-box retail (like Costco) and personal care facilities. Institutional work will continue to be weak until a high level of optimism returns to developers and investors. This will likely be influenced by the availability of a COVID-19 vaccine.
MBA: What does all this mean to Midland and the GLB Region?
Lynch: Everyone is suffering from COVID fatigue but it’s important to focus on resilience and keep the light at the end of the tunnel in view.
For a broad view of the economy, I follow the Northwood University COVID-19 Optimism Index which is prepared daily by the McNair Center for the Advancement of Free Enterprise and Entrepreneurship at Northwood University. It shows a strong state of economic recovery currently taking place.
Locally, our economy is stable when comparing local unemployment data to statewide averages. For the next quarter, we expect project sponsors to remain conservative with capital investments. We are turning our attention to spring and summer when we hope vaccine availability will energize optimism and investment.
To learn more about Three Rivers Corporation, the markets they serve, and recent projects that are making a positive impact on the Midland community and the Great Lakes Bay Region, visit https://trccompany.com.
To find more information on the economic impact of COVID-19 on the Midland Community, email firstname.lastname@example.org
Tags: Architecture Billings Index, Commercial construction, Construction trends, COVID recovery, economic impact, Great Lakes Bay Region, Midland Business Alliance, MidMichigan Health Heart and Vascular Center