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Jim Lucy Edit Pr

A Look at 2021 & Beyond

Dec. 3, 2020
The post-pandemic construction market will look very different.

Even before the pandemic hit, it was always going to be tricky to forecast the 2021 construction market. Huge macroeconomic and demographic changes were already in play that were reshaping demand for office, multi-family and retail construction, and they will be an even bigger force in the post-pandemic construction market. Anyone who depends on these  markets for business is already feeling the impact of these market-shaping mega changes.

Offices. While new office construction saw an +11% gain in square footage in 2019 over 2018 to 152-million square feet, Dodge Data & Analytics said that mark was 66 million square feet below the office market’s high point in 2007. Even before COVID-19, many companies were already quietly experimenting with work-at-home or remote officing policies that would trim their needs to build or rent new office space in the future.

These existing trends were accelerated in 2020 because of concerns with the coronavirus, and Dodge Data & Analytics expects the office construction market to decline -20% this year to 122.1-million square feet and gain back some of that loss with a +5% increase in 2021.

You can get a sense for the challenges ahead for the office market from an Oct. 2020 survey of major employers located in the Big Apple by the Partnership for New York City. It said that only 10% of Manhattan office employees have returned to the workplace as of late October, and that the total share of employees expected to return by July 2021 decreased from 54% to 48%.

Multi-family. Even if office construction wasn’t quite hitting the same numbers as in the past, residents and visitors to New York, Boston, Chicago, Miami, San Francisco, Seattle and Washington, D.C. marveled at how many luxury apartments were being built over the past few years. New York was getting a big share of these projects, and in 2019, as 32 multi-family projects valued at $100 million or more broke ground according to data from Dodge Data & Analytics.

Several of these luxury condo buildings now tower over Central Park, but it’s anyone’s guess as to what the demand for buildings like these will be in the post-COVID-19 world. Many city dwellers have hit the highways out of town and moved to the country or suburbs because of public health concerns with subways, buses, elevators and other places where they come into close contact with other people. No one knows if this urban flight is permanent or just a short-term reaction to the pandemic, and construction economists still believe the long-term future for the multi-family market is decent. But this always-cyclical chunk of the construction business appears to be cooling off, and Dodge data shows a -14% decline in 2020 to $86 billion, followed by a -1% decline in 2021 to $85 billion.

Retail. While you can construct a case for the multi-family market to rebound in the not-too distant future, it may be a different story for what has been another major piece of the construction market — stores and shopping centers. Online shopping was already nibbling away at the sales of brick-and-mortar stores, but there’s little doubt the pandemic forced more shoppers away from shopping malls and to the comfort of  online shopping from their couches.

The data points to a tremendous drop in new retail construction over the past four years. According to Dodge Data & Analytics, total retail square footage will decline -28% in 2020 from 2019 before rebounding +5% next year to 58.1-million square feet. That’s -48% less than the retail square footage put in place back in 2016. It’s tough to find bullish numbers for the retail construction market, and when you read the 2021 Dodge Construction Forecast’s analysis of this market segment, the news doesn’t get any better. “According to Business Insider, a record 9,300 stores closed their doors in 2019,” the report said. “COVID-19 has only added to the problem. In just the first eight months of 2020, 66 brands closed 13,262 stores — more than in all of 2019.”

While these macrotrends will affect large swaths of the construction market in the future, they will also create new opportunities in renovation of existing buildings. The companies that adapt the fastest to the new realities of the construction market are sure to reap the benefits.