August 3, 2021 at 7:00 am
On May 20, Drew Sigfridson, SIOR, Managing Director at The Boulos Company, was a commentator for the Maine Real Estate & Development Association’s (MEREDA’s) 2021 MEREDA Index. Drew’s comments on the Construction Sector follow Economist Charles Colgan’s analysis for 2020.
The MEREDA Index is a measure of real estate activity designed to track changes in Maine’s real estate markets. The Index is a composite of nine seasonally adjusted measures reflecting both new development and transactions involving existing properties and it covers both the commercial and residential markets statewide. The most recent edition covers the year 2020 and provides commentary on the Commercial, Residential, and Construction sectors. The MEREDA Index for 2020 is 113.3
THE CONSTRUCTION COMPONENT: 95.6
[Charles Colgan Analysis] “The construction employment Index was up 0.6% in 2020 over 2019. There was a sharp dip in the second quarter as the shutdowns took hold and the rules about safe working were being worked out. But employment quickly recovered in the second half of the year to pre-pandemic levels. Construction employment has shown relative stability to slight growth for several years, which the pandemic briefly, but only briefly interrupted.”
[Drew Sigfridson, SIOR, Managing Director] “2020 was certainly a year for the history books, but it wasn’t all bad. We expected residential and industrial to be hot markets, and they were. And while things are selling, they’re going at a premium. 2020 drove the costs up for building materials, lease rates, and purchase prices across all sectors. But the unexpected twist during the pandemic was that the industrial market remained hotter-than-ever, with very little pause. This was driven by the need for shipping, warehousing, and manufacturing space. This need created a trend in new construction as well, which was a bit unpredicted. For years, southern Maine has had record low inventories of industrial space – yet, costs for new construction were always far greater than being able to purchase an existing building. With limited supply and increased demand, the delta between new construction and existing industrial properties has closed enough to move the needle for this sector. Buyers realized that if you’re going to pay a premium to buy and retrofit, you might as well just build something new and customized. If we use The Downs as an example, we have 80% of the lots committed in Phase 1 and Phase 2 of our industrial district (Innovation District), which all will result in newly constructed buildings.
When the pandemic hit, The Downs was a ‘blank canvas’ so we were already poised to meet market demand in the expected sectors of industrial and residential. Interest has been high, and despite uncertainty regarding Covid, companies are still making decisions relatively quickly. The same pace continues in the residential sector with units selling faster than we can build them. The entire country is now looking to places like Maine to balance out their home and work lives. Fortunately for us, The Downs’ master plan included all of the amenities needed to live, work, and play – which proved to be a coveted community trifecta during the pandemic.
It’s tough to say exactly what will happen with the construction industry moving forward; there is demand, macroeconomic factors, and interest rates to consider. With construction costs being high, if interest rates go up, it becomes even more difficult to make a project work. It is hard to predict how long all the variables will stay aligned. But if 2020 has taught us anything, it’s that regardless of what industry you’re in, we are more resilient than we could have ever imagined, which is perhaps the most valuable lesson on the table.”
Roccy Risbara, Managing Partner at The Downs, contributed to this commentary.