Being deemed an essential service hasn’t immunized Alberta’s commercial construction sector from the effects of COVID-19.
While existing building sites remain busy, few new projects are breaking ground over supply chain woes and economic uncertainty.
“When the province deemed [construction] an essential service, there was the expectation that schedules wouldn’t be affected,” says Frederick Vine, chair of the Alberta Construction Association.
“It’s quite a discussion to be having with the client that although construction wasn’t shut down, we were still impacted.”
Unlike Ontario or Quebec, where, initially, commercial construction was halted by provincial governments, Alberta allowed work to continue without interruption as long as Alberta Health requirements could be met.
But protecting employees from the spread of COVID-19 on constructions sites takes time.
“We have sign-in requirements for tracing,” Mr. Vine says. “Workers can’t congregate at the front gate. They have to be spaced out and come in spaced apart. Work has to be occurring with social distancing in mind.”
Global and national supply chain disruptions have been another delay point.
“Structural steel comes from Quebec and [that] industry was shut down completely,” Mr. Vine says. Some sites could be ordering doors from Washington State and it shut down early in the pandemic, he added.
Mr. Vine says sorting out where everything was coming from was challenging and expects there will be continuing disruption in supply chains out of the United States as COVID-19 cases continue to rise there.
Who will play for delays? Mr. Vine says that’s still unclear.
“Most contractors are seeking that the owner of the project should be paying for that. Most owners are trying to push back and say they shouldn’t be paying for it. Most of those discussions are happening and I can’t tell you how they are going to be resolved.”
Michael Saunders, Edmonton-based vice-president of development at Qualico Commercial, says the key is for developers and contractors to work together rather than resort to lawsuits because the case law is murky.
His firm has more than $200-million in active construction sites in Edmonton alone.
“We have seen some supply-chain-related issues largely for material sourced from outside of Canada. That has included furniture, kitchen cabinets, specialty equipment for food production, mechanical and electrical fixtures. But for the most part … schedules have been met and will continue to be met.”
Mr. Saunders says the situation has been tough for tenants whose businesses were deemed non-essential at the beginning of the COVID-19 outbreak. For instance, it is still not entirely clear, he says, how businesses such as fitness centres will look in the long term.
“The bulk of our business is in neighbourhood commercial retail and people still need to get haircuts and nails done. … From an economic recovery [perspective], that’s probably more V-shaped than other industries because it’s small discretionary spending and people are able to do that.”
“On new developments there’s a lot of scrutiny. There’s still the uncertainty of COVID-19 that’s clouded the decision-making process for companies to move forward in the short term,” he says.
Developers will be looking for higher leasing levels before proceeding, Mr. Saunders says. Finding construction financing might be tougher.
“It’s still achievable, but everyone’s crossing their t’s and dotting their i’s.”
The delay in new projects isn’t having an effect yet, but it will, Mr. Saunders predicts.
“I think you’ll see the true effect related to construction pricing a year from now. The backlogs will be burned off and that’s when people will get really hungry. Labour, material, equipment costs will remain unchanged, but margins people build into construction costs – those will get compressed. You will see a slight decrease in costs.”
Cameron Naqvi, president of the Cameron Development Corp. in Edmonton, says his firm has already seen signs of declining construction prices in Alberta.
“We’ve seen some quite significant reductions in price with the last couple of tenders we’ve had. We’re talking to other developers and they’ve seen similar [reductions]. Is that an anomaly and we just got the timing, right?”
His firm has a couple of major developments under way during this pandemic, with grocery-store anchor tenants as well as some smaller projects.
“We’ve been working with the tenants that we signed leases with on those [smaller retail projects] and we’re monitoring their appetite for whether we should move forward or pushing those dates out,” Mr. Naqvi says.
But some plans have been shelved indefinitely, he says.
“We may be looking at commercial or industrial projects and saying there’s too much vacancy in the market. We may need to right size them or change the land use,” Mr. Naqvi says.
“We’re having to reposition and decide if what we’re building is sellable in the post-COVID environment. …We’re probably safer to convert some of those [projects] to residential. Although residential is down as well in this market, it has a better chance of [recovering] sooner than commercial.”
Aspen Properties, which holds $1-billion in office assets in Calgary, has a couple of major renovation projects under way, totalling about $30-million, says R. Scott Hutcheson, Aspen’s executive chair.
The firm is recladding its One Palliser Square building, as well as doing a major renovation on the Sun Life Plaza in downtown Calgary.
Chandeliers from Italy had to be resourced from a Canadian company, Mr. Hutcheson says, but there have been few other delays or issues on Aspen’s projects.
However, the firm has delayed all the small operating capital expenses in its 10 office towers in Calgary such as renovating washrooms or elevator cabs.
Suspending those nonessential or strictly aesthetic capital expenses, plus paring back on maintenance and security, is saving up to $2 per square foot, a saving which tenants appreciate in COVID-19 times, Mr. Hutcheson says.
Calgary has had its ups and downs in the past 10 years, including a historic flood and oil price crashes, but COVID-19 is a “change-everything circumstance,” he says.