Vermeulens has convened construction forums made up of designers, construction managers, owners, engineers, subcontractors, vendors, and consultants to share knowledge, planning, and construction related issues during these turbulent times. Please find a summary of these conversations below.
- Commodity prices trending upward with demand rebounding and monetary policy easing
- Interest rates at all-time lows 0.00% - 0.25%
- Quantitative easing: $3 trillion spent to provide liquidity
- Stock market has rebounded to 2019 values making back losses from Q1 and Q2
- Gross Domestic Product (GDP); slight reduction in Q1, substantial decline of 32.9% in Q2. Q3 anticipated to be 20% growth
- Vermeulens Construction Cost Index has shown rapid decreases below the long-term trend line in past recessions
- Current trendline remaining flat with rates declining on some (+/-10%) of bids
- The depth of this downturn will depend on the extent of the pandemic and the quickness of the response
- All have implemented safety protocols of resources and partners onsite; small instances can shut down a project
- Shift work and screening may be costing subcontractors a 10% premium
- Many contractors reporting consistent market activity
- In some cases, the unemployment benefits outweighing some non-union labor wages and the workforce is shrinking
- Subcontractors need added time to price; pricing spreads getting larger despite improved coverage
Design Teams & Owners
- Many owners are moving ahead cautiously with designs in latter stages
- Projects on hold or deferred could come off the shelf rapidly as the market stabilizes
- Office design and occupancy will be a rapidly evolving design challenge
- A decrease in revenue from taxes (hospitality industry, convention center, etc.) will likely result in a slow down in most major metropolitan areas
- To date, vendors involved have noticed no substantial supply chain issues
- Looking for opportunities to pre-purchase long lead items
- Fixed Furniture and Equipment (FFE) is beginning to show issues with delivery schedules
Line item unit rates are holding at March 2020 values. Increased subcontractor coverage are reducing rates on +/-10 percent of projects. In previous recessions this would bring rates down over the medium term, however, the rapid response of monetary policy to the COVID-19 crisis will strongly stimulate the construction market.
“With the recovery likely to face COVID-19-related headwinds for some time, in the coming months, it will be important for monetary policy to pivot from stabilization to accommodation. As we move to the next phase of monetary policy, we will be guided by the Committee's new goals and strategy statement.” See New Challenges speeches by Powell and Brainard.
Crude Oil bounced back to the $40 per barrel bracket partially due to US monetary policy.
Labor markets have had a substantial rebound and have added back half of the job losses in the market. We have returned past the bottom threshold set in 2010 with only 85% of the workforce being employed.
US GDP had a 32% annualized decline in Q2. However, early estimates for Q3 indicated a 20% rebound.
Vermeulens strives to give its clients the greatest possible value and results for their projects.
Download PDF version of the Market Outlook Special Report June 2020
Previously Published Market Outlook Quarterly Reports
Market Outlook Special Report June 2020