From The Editor

Education Construction Spending Tells Varied Stories

By on
MCN Editor Beth Gainer

The higher education spending boom is likely over, another victim of the coronavirus. That was just one of the conclusions drawn by two experts in the construction trade who spoke during a weekly webinar series.

The May 5 METALCONLive webinar, "Trends in Metal Construction and Design Q2 and Q3 2021," featured Ken Simonson, chief economist at The Associated General Contractors of America, Inc., Arlington, Va., and David Burstein, senior principal at PSMJ Resources, Inc., Newton, Mass. Simonson presented his thoughts about construction trends, and Burstein shared highlights of PSMJ’s quarterly market survey. 

The men agreed the building sprees that have taken place at four-year colleges and universities are probably a thing of the past.

Simonson said construction spending for higher education is suffering because of the pandemic, and such spending will continue dropping. “You had this huge loss of students, tuition, student fees and, in some cases, student athletic revenue,” he said. “There’s a big question as to how many dorms and classrooms and other facilities are going to be needed going forward.”

Burstein agreed higher education projects are suffering. “During the last 10 years, there was a huge capital expenditure boom in higher education,” he said. “Everybody wanted to put up fancy new dorms and new classroom facilities. I think a lot of that was driven by the U.S. News & World Report rankings, which put a lot of emphasis on physical facilities, and so tuition as a result just kept going up, and I think people are finally saying ‘That’s enough. We can’t afford to pay any more tuition.’ The states are saying, ‘That’s enough; we can’t afford to keep putting more money into higher education,’ so I really think higher education is going to be down for a while.” 

One exception to the downward trend in projects for higher education facilities are community colleges – partly because of the Biden administration’s goal of providing federal funding to make community colleges free. Burstein added that instead of public school being K-12, it might be pre-K to grade 14, which would include the two years of community college. Whether this change will come to fruition has yet to be seen.  If community colleges actually receive such federal funding, “We can see a real bifurcation between a hot community college market and what will probably continue to be a cold market for four-year universities,” he said. 

Simonson pointed out a bright side regarding educational-facility spending: primary and secondary school construction. Such construction includes renovation to improve HVAC systems and reconfiguring classroom spacing. “Primary and secondary school reconstruction will continue,” he said, “and if we get more home building in areas not served by a school, we’re going to see new schools built also.” 

Outside the education space, warehouse construction is also up, partly reflecting the building “of last-mile or last-hour distribution centers so we can order it today and get it delivered today,” said Simonson. Burstein agreed: “Proposal opportunities for warehouse distribution facilities are strong.” 

On the opposite end of the spectrum, retail construction has had one of the most significant declines, and Simonson predicted this will continue through 2021. “The shift to e-commerce is certainly permanent,” he said, noting the nature and location of retail structures are going to keep changing, containing automation inside, as well as autonomous vehicles, drones and robots making deliveries to the customers. Burstein agreed. “Retail especially is probably not going to be strong,” he said. “We’re going to continue to have people delivering on Amazon trucks instead of people driving to the mall.”

Burstein also reviewed some highlights of PSMJ’s quarterly market survey, which tracks revenue trends and proposal opportunities for major sectors that tend to use a lot of metal construction. The survey he discussed compared Quarter 1 2021 to Quarter 4 2020. 

According to the survey, federal, state and local public buildings experienced positive growth in proposal opportunities in Q1 2021, compared to Q4 2020. Among submarkets that achieved growth were justice facilities, such as courthouses. These facilities went from negative in Q4 2020 to positive in Q1 2021. Public safety structures went from neutral in Q4 2020 to positive in Q1 2021. Sports facilities stayed negative in proposal opportunity growth from Q4 of 2020 to Q1 of 2021. 

The light industrial market has been red hot in Q4 of 2020 and Q1 of 2021, according to PSMJ. Its submarkets include component assembly facilities, repair facilities and warehouse distribution facilities. 

While the residential housing market did go negative in proposal opportunities during the shutdown, it recovered quickly nationwide. “All the submarkets are really strong too. And this is a particularly important market,” said Burstein. “In fact, of all these markets, the one [category] I look at as a kind of bellwether is Single Family Development (Subdivisions) – if people are going to keep building subdivisions, this will drive construction of roads, water systems, libraries, schools, courthouses and bridges.” 

Of note, since early 2020, lumber prices have more than doubled. “When you look at steel prices – metal rebar and the U.S. Dollar Index, they’ve gone up too, but they haven’t gone up as much as lumber prices,” said Burstein. He noted American homes are traditionally built with lumber, but many of the metal fabrication and construction professionals have been advocating for substituting metal framing instead of lumber framing. “It looks like there may be an opportunity here from a cost standpoint to really capture some of the very hot residential market.”

Overall, Simonson expressed guarded optimism about the U.S. economy. “Clearly the economy is rebounding very strongly, much more strongly than I and most economists believed was possible a year ago,” he said. “But there’s still a risk that we will have a further setback with new variants of the coronavirus or some other unforeseen change in the economic conditions.”