For the past several months, we have seen the damaging impact of the global pandemic on the U.S. economy. Many industries are suffering significant losses as businesses work to maintain equilibrium and mitigate losses. What often gets lost in the headlines is that some industries, like construction, have fared better than most.
After a COVID-19-induced downturn in March and April, the Dallas construction sector began rebounding from the pandemic. According to the Associated General Contractors (AGC), Dallas and Miami were the only two major metro markets that had construction activity rebounding to pre-pandemic levels by the end of May. A recent Dodge Data & Analytics report shows that total construction starts in Dallas increased 6% in June, with new construction jobs in Dallas-Ft. Worth. COVID-19 spikes in the region certainly affect recovery, but the outlook for construction is optimistic, especially in the industrial sector.
Factors Driving Industrial Construction Growth
Several factors related to the pandemic will result in a substantial boost to the industrial real estate and construction sector. When manufacturing stopped in China, the original epicenter of the novel coronavirus, U.S. businesses scrambled for alternate sources of materials. Project delays and business interruptions have underscored the need to have inventory close at hand, where it can be accessed even during crises. As businesses relocate inventory to the U.S., there will be a high demand for the construction of industrial space.
Retail, one of the hardest-hit industries during the pandemic, may never be the same. Prior to the pandemic, a growing number of retailers had already decided to do away with bricks and mortar. Many are either converting businesses or launching new businesses solely online, where they can best meet the needs of their customers, including older customers who have now become more comfortable making online purchases. According to CBRE data, e-commerce sales comprised 15% of total retail sales in 2019. By 2030, that number is expected to increase to 39%, but the pandemic will most likely accelerate that growth.
Grocery and discount stores must rely on vendors that have greater amounts of merchandise in stock, and that increases the demand for warehouse space. These “pick-pack” facilities are usually at least three times the size of a retail store.
Some industry experts predict that the U.S. will need another one billion square feet of warehouse space by 2025, as e-commerce booms. As contractors know, industrial buildings are typically less complicated to construct with less rigid building code requirements, all adding up to fewer delays. Additionally, some business owners are moving out of traditional office buildings and adding office space to their warehouses.
For all these reasons, the growing demand for warehouse space could become a long-term pattern.
The construction industry as a whole will have to contend with more competition for jobs to try to maintain and build a solid backlog. According to an August 11, 2020 Associated Builders and Contractors (ABC) report, construction backlog was a full month lower in July 2020 than in July 2019. Many firms are bidding on more projects than is typical, given their concern about demand for their services. Contractors will need to remain focused on maintaining profit margins despite these competitive bidding pressures.
On the bright side, a green light on large infrastructure projects will significantly benefit the construction industry. More than $9.6 billion in infrastructure projects have been delayed or canceled amid the pandemic, according to a report released by the American Road & Transportation Builders Association (ARTBA). According to the report, 16 states announced project delays or cancellations worth approximately $5 billion, and 20 local governments and authorities put projects on the back burner, worth another $4.54 billion. The industry is carefully watching to see how the 2020 general elections play out, and where infrastructure projects rank as a priority.
Overall, the industrial sector of the construction industry will benefit from changing patterns emerging from the COVID-19 crisis. The need for bigger facilities, the rapid increase in online shopping, and structural flexibility should help the sector come out of the crisis in good shape.
If you have questions or concerns about the growth of your construction company, please contact the real estate and construction professionals at Goldin Peiser & Peiser or Barry Watson at 972-818-5300.
Note: This content is accurate as of the date published above and is subject to change. Please seek professional advice before acting on any matter contained in this article.