Archives for December 2021

At the GlobeSt.com Multifamily conference, CBRE global chief economist Richard Barkham forecasts 6% GDP growth in 2021 and 2022, below the initial expectations.

The economy is springing back from pandemic-fueled downturn that marked 2020. At the GlobeSt.com Multifamily conference earlier this year, Richard Barkham, global chief economist and head of Americas research at CBRE, gave an economic forecast for the multifamily market, starting with a macro view. He had a optimistic outlook for the economy, although he did not temper expectations for the current expansion.

Specifically, the current CBRE research forecasts 6% GDP growth this year and next year, with a more mild expectation of 4% GDP growth in 2023. While this is still strong growth expectation, Barkham notes that they are below the firm’s forecast at the beginning of the year, which pegged closer to 7% growth this year.

In addition, any impact from the Delta surge is officially over. The economic-related fallout from the third wave earlier this year mainly occurred in the South, but even there, it had minimal impact on the economy. There was a minor flattening in growth, but segments of the market, like air travel and food and beverage purchases continued to grow.

While Barkham’s economic forecast was optimistic, he did note pressure points that could alter the course of the growth. The port backlog was on that list. There is currently a line of ships at the Ports of Long Beach and Los Angeles to waiting to unload. It is just one example of the major supply chain disruptions caused by the pandemic. “The supply side is trying to catch up,” said Barkham.

However, there is a secondary reason for the backlog: a lack of labor. Many people have not reentered the labor market following the pandemic, and as a result, essential jobs are going unfilled. “People are rethinking their lives,” said Barkham, adding that the expanded unemployment had little to do with the labor shortage. Instead, he pointed to increased savings during the pandemic that is giving people more options. Normally household back accounts represent about 35% of GDP Today, they account for 74%. People are sitting on cash, and it is allowing people to have more options to stay out of the work force.

Restricted economic growth in China is also one of Barkham’s concerns. In the third quarter, the country’s massive economy reported only 1% GDP growth. Comparatively, it has had 7.8% quarterly growth from 2010 through 2019. This is largely due to supply chain disruption as well as new energy regulations. The drag in China is currently having a positive impact on the US economy, helping to drive the low interest rate environment and taking the pressure off of inflation. Overall, this has been a net positive, but it is a risk and a trend that Barkham is watching closely. For now, he is encouraged. “We are in a world where bad things can be good.”

Source: “Economic Growth Expectations Temper As We Near The Yearend“

New industrial markets are emerging worldwide, driven by the need to store more inventory and diversify manufacturing sources to counter supply chain disruptions.

Read the research report here.

An expected détente of predictable pricing for planning purposes went elsewhere.

As recently as October, lumber prices seemed to be moving to a new sustainable norm. It seemed as though prices in the $500 to $600 range per thousand board feet might become the new normal for the next year or so.

Or so it seemed … until the middle of November, when prices again began to rise. Yesterday closed at $979.30.

“The factors that caused the rise in lumber prices earlier in the year are still at play today,” Chip Setzer, director of trading and growth at commodities platform Mickey, tells GlobeSt.com. “Weather continues to be a driving factor for both supply and demand. We’ve seen unseasonably warmer temperatures across the US which has allowed construction to continue well into the start of winter. This has allowed the demand for building materials to remain strong. Also worth noting is that interest rates remain low, which is continuing to fuel housing demands.” Canada has also seen ongoing bad weather conditions, including major flooding affecting highway systems, that delayed and even stopped many lumber shipments into the U.S.

Prices “may continue to rise to above $1,000, which was last seen in Spring 2021,” Ross Price, director of finance at Mickey, tells GlobeSt.com. “This has been driven by a combination of strong construction activity, limited supply due to labor shortages, flooding in Canada, and an announcement by the US government that it would double tariffs on Canada’s lumber.”

The tariffs had been about 9%, but just before Thanksgiving, the U.S. decided to double duties to 17.9% on Canadian softwood lumber. Softwood is the material used in such applications as framing and concrete forms.

“As a result, the cost of home prices is expected to increase, which will continue to cause issues to homebuilders,” Price continues. “At some point, demand for new housing should subside which will lower the demand for lumber and prices could potentially fall.”

The housing market’s growth has shown recent signs of slowing, although the S&P CoreLogic Case-Shiller Index has still been above the 2006 through 2019 average.

“Traditionally in Q4 we see a large push for orders to be filled prior to the holidays,” Alex Meyers, Mickey’s director of operations, says. “In export markets to Asia for example, manufacturers and distributors will take larger than normal inventory positions to ensure sufficient levels of stock are arriving prior to and after lunar new year, which typically grinds the market to a halt for 3-4 weeks.” Given existing low availability of materials and ongoing supply chain problems, “demand far outweighs available supply and prices trend up as a result.”

Call it a lump of coal in the stocking of development and construction.

Source: “Rising Lumber Prices Are Back With a Vengeance“

Katlyn Cotton doesn’t usually encourage tearing buildings apart.

But when the city of San Antonio reached out to her firm, Washington, D.C.-based PlaceEconomics, for help conducting a study on deconstruction — a process of carefully pulling apart buildings to preserve their component materials for eventual reuse — Cotton, who usually works on historic preservation, realized how much potential these old buildings have for a second life. And the vast majority of that potential is being wasted.

“I think for the sake of our future on this planet, we should be doing it to just, like, almost every building,” Cotton said.

From Palo Alto to Pittsburgh, U.S. cities that are looking to move aggressively to promote green jobs and infrastructure are showing more and more interest in deconstruction, which could unlock a new source of revenue for construction and demolition firms while simultaneously cutting into the enormous carbon emissions created by the industry.

For those cities that have found ways to make it work, up to 95% of building materials on deconstructed projects are reused or recycled. But making the process cost-effective has hampered widespread adoption.

The construction and demolition industry pollutes on a massive scale, generating more than 600 million tons of waste in the United States in 2018, twice the amount generated by municipal sources like curbside trash. Globally, researchers have found that the construction sector contributes 12% of gross domestic product but is responsible for almost 40% of the world’s carbon emissions.

Those contributions aren’t shrinking. Waste from the construction industry is expected to double between 2012 and 2025, to 2.2 billion tons, according to a recent Transparency Market Research report.

Governments aren’t acting fast enough to quell the environmental impacts of the booming construction industry worldwide, and in North America, “insufficient resources, lack of standardization, slim profit margins, policy apathy and lack of education” are cited as reasons why the reuse of building materials hasn’t become more commonplace, Construction Dive reported.

Billy Grayson, the executive vice president for centers and initiatives at the Urban Land Institute, said regulations targeting the recycling of building materials are the surest way to push widespread adoption of deconstruction. He cited the success of LEED standards, which cities like D.C. now require for certain buildings, as proof that policy can meaningfully move the needle on sustainable development.

“The LEED standard for more than a decade has helped drive a reduction in construction waste and similar standards can be applied to construction,” Grayson said.

Deconstruction can also help construction and development firms measure their carbon footprint more easily than building from new materials.

“It’s easier to track the supply chain from deconstruction to the recycling center … than it is going all the way up to the mine,” Grayson said.

In San Antonio, PlaceEconomics found that there was a ready market for the materials generated by deconstruction. By phasing in an ordinance mandating deconstruction for older residential buildings first and gradually scaling up to commercial buildings, the study found the city could effectively build a market of sustainable building materials ready for a second life and divert 80% of construction waste from landfills.

“Eighty percent of the buildings that are going to exist in 2030 or 2050 already exist, and the materials have already been extracted,” Cotton said. “So how do we limit extraction and promote reuse as much as possible?”

Grayson said that the best option to preserve the carbon already embodied in buildings is to keep them standing through adaptive reuse. But when that option fails, deconstruction is the next best way to tackle the emissions of a rapidly accelerating industry.

“Some buildings were built from crappy materials… so if you have to take a building down, the best way to take it down is in parts that can be immediately reused in other buildings,” Grayson said. “It’s just like your household trash: It’s reduce, reuse, recycle.”

‘Better Quality Than Virgin’

San Antonio is one of the fastest-growing cities in the country, but in the United States, deconstruction first took off in cities that were losing population.

When the concept of deconstruction first caught on in the country roughly eight years ago, it was seen as a way to tackle the problem of blighted homes in cities like Baltimore, Detroit and Indianapolis, said Jon Grosshans, a senior adviser in the Environmental Protection Agency’s Office of Policy.

The process was primarily seen as a form of urban renewal that salvaged valuable building materials and created good jobs for workers struggling to find good-paying jobs. Instead of tearing down old vacant houses, the valuable old-growth timber used to build them in better times could be carefully salvaged and repurposed in other homes or projects in the city.

“There’s a phrase I keep hearing and that’s, ‘The northern forests of the Midwest now exist in the bungalows of Chicago and Detroit,’” Grosshans said. “So a lot of the old hardwoods, a lot of the good material that was used to build these homes historically in the larger metro areas in the Midwest is still there and it’s still a lot of good solid wood and material that can be reclaimed and reused.”

To capture that material and turn those cities’ blight into an asset, Grosshans helped develop the Deconstruction Rapid Assessment Tool with the EPA. Published in 2015, the tool gives cities an efficient process by which to evaluate individual buildings or entire blocks for the best opportunities to salvage materials through deconstruction.

The practice has since taken off with growing cities like Portland, Oregon, as well because they can use the standardized evaluation process over wide swaths of area and find, say, the 10 buildings out of 100 where deconstruction would be the most cost-effective.

“If you don’t know what you’re getting, it’s kind of easy to assume that it’s all worthless and there’s not a lot of value there,” Grosshans said. “You don’t find out that you might have some real gems until it’s too late.”

Portland touts its deconstruction ordinance, which applies to single-family homes and went into effect in 2016, as a leading example for cities looking to encourage the reuse of building materials. By 2019, the city estimated it salvaged more than 2 million pounds of residential building materials for reuse, saving 7.6 metric tons of carbon emissions per house.

But many in the construction and demolition industry see commercial buildings as an even greater opportunity for the supply of reusable goods if cities are willing to scale up their deconstruction requirements.

Brandie Townsend, a senior consultant with waste management firm Gershman, Brickner & Bratton Inc., said starting with residential teardowns might work for cities with blighted blocks, but the real profits are in materials from larger commercial buildings.

“If you were to deconstruct a commercial size building and build residential or live-work-play buildings in that area and you can have a high-quality building to deconstruct and reuse, it would be a better quality than virgin,” Townsend said.

Townsend, who studied architecture before moving into waste, said when she speaks to general contractors, she implores them to think of the cost savings they could get by selling materials like PVC piping, copper, brick or good-quality lumber instead of paying to dump them in a landfill.

“If we can continue the conversation and get better at deconstructing and using what we have, like a bird in hand, if we can use that bird then we can just have a bigger, better community,” Townsend said. “We have everything right there in hand to work with.”

Winning The ‘Schedule And Budget’ Battle

Scaling that process up can get tricky without strong government support.

When Virginia-based general contractor HITT Contracting developed a research and development facility, which it dubbed Co|Lab, in 2019, it used deconstruction to demolish the single-family home the Co|Lab would replace.

Instead of smashing the old building, HITT deconstructed the house and recycled 98% of the materials. But since Co|Lab opened, just one other HITT project has used deconstruction, HITT Director of Sustainability Isaiah Walston said. He declined to identify which project.

HITT’s inability to use deconstruction more widely is common in an industry that, as a whole, has yet to embrace deconstruction as standard practice on demolition sites.

“The problem that we’re not seeing massive implementation of deconstruction is I think twofold: schedule and budget,” Walston said. “Those are the things holding them back, and those are the two primary considerations, rightfully so.”

But many local and state governments are beginning to develop policies to entice developers to consider deconstruction, rather than balking at the upfront cost.

In Hennepin County, Minnesota, for example, contractors receive a $5K grant if they choose to deconstruct rather than demolish a home to help offset increased labor costs. Pittsburgh, a Rust Belt city with blight problems of its own, also announced this year that it would convene a Deconstruction Action Council and would fund deconstruction for some city-owned vacant properties.

Even Palo Alto, a city where the housing market has boomed over the last decade, has implemented one of the nation’s strictest deconstruction ordinances to date: all commercial and residential projects where structures are being completely removed must be deconstruction projects, not demolition.

City officials in Palo Alto and elsewhere have acknowledged that deconstruction isn’t cheap. But PlaceEconomics’ San Antonio study found that there are ways to offset the increased labor costs.

For example, cities could use tax incentives and grants to early adopters of deconstruction and could use city-owned properties slated for demolition as pilot projects for deconstruction. Those pilots could be used by demolition contracts to demonstrate their capability to deconstruct buildings and win more business going forward.

“The kick-starting phase sometimes needs a little help,” Cotton said. “Having an ordinance is a commitment on behalf of the city to a concept like this but it also supports the creation of a market.”

Cotton said San Antonio is a willing participant in part because the city has been focused for several years on creating a circular economy for all waste. But there’s plenty of opportunity for cities to work collaboratively with private industry to make deconstruction happen.

“In a linear economy, which most of our systems are pretty linear right now, we construct a new thing … and then we use it until it’s broken, usually,” Cotton said. “All the energy that goes into producing it is wasted, but if we had a circular economy, we could fix that vacuum.”

Source: “Real Estate Knows How To Recycle And Reuse Building Materials. So Why Isn’t It Happening?“