Construction industry poised for slump or success?

Tim Smith investigates the state of the industry in the postpandemic world

From the glory days of multiple major projects to the barren period of Covid, the past few years have been a rollercoaster ride for the construction industry.

Industry leaders are cautiously optimistic the next phase – a glut of small- to medium-sized jobs – is the first step towards a more stable future.

Proposed hotel developments such as at The Fairmont Southampton, Rosewood Tucker’s Point, White Sands Hotel and Munro Beach Cottages point to upgrades for the island’s tourism infrastructure; together with a buoyant residential market, it seems local builders are in for a busy few months.

Simon Tully, president of the Construction Association of Bermuda, says firms with good practices are already enjoying a boom.

“Contractors who have a solid reputation for quality of work, comprehension of the task, good staffing levels and execution of the contract to the expected client levels are swamped with work,” he says.

Yet it’s perhaps wise not to get carried away just yet.

For a start, although many plans have been unveiled, the process towards them becoming a reality can be slow and complicated.

“What makes me feel optimistic is that there appear to be a higher number of medium-sized investments being contemplated by mostly local entities,” says Alex DeCouto, president of Greymane Construction.

“But part of me feels slightly less optimistic, as many of the large projects that were pushing to get off the ground six months ago have failed to make meaningful progress in getting to the starting line, such as The Fairmont Southampton and Ariel Sands.

“This is not a great sign, but also a symptom of how difficult it can be to get large projects off the ground in Bermuda.”

Mike Ewles, CEO at BCM McAlpine, is also cautious.

“Many of the larger potential projects have been planned for some time and, until we see work in the ground actually start, they remain potential projects,” he says.

“Rising interest rates and persistent inflation will definitely make these projects harder to finance, so we really need to get a couple of the larger projects started to feel confident that commercial construction is rebounding.”

Rival jurisdictions can offer lower acquisition, construction and operating costs than Bermuda.

“If we make it too difficult or uncomfortable for them, they will go elsewhere,” Ewles says.

DeCouto says the industry is more likely to thrive with multiple smaller jobs than when dominated by one or two huge developments.

“Mega projects tend to involve overseas firms with lots of temporary workers shipping their profits and proceeds off island,” he says. “These tend to create lopsided winners and losers in the industry, as only a handful of local firms might get involved.

“The local construction industry benefits more from investment below mega project level. I think ten projects at $10 million each has more meaningful long term sustainable impact for local firms and local workers than a single $100 million project.”

It’s certainly been an unusual few years for the construction industry.

The period leading up to 2020 saw a string of large developments including the new terminal at LF Wade International Airport, the St Regis Hotel, Belco’s new power plant and Caroline Bay at Morgan’s Point.

Then, of course, Covid brought a swirl of uncertainty in 2020-21.

Tully says Bermuda has “bounced back tremendously” since then, in tandem with the recovering global economy.

DeCouto says most people were surprised at how robustly the residential market responded post-Covid, with a continuation of high-residential demand, a boost of pent-up small scale commercial spending and international business start-ups that fuelled demand for office fit-outs.

“While the absence of large-scale projects was no doubt felt, the drop in total employed in the industry has only been a small amount in 2020 and 2021 relative to previous years,” he says.

Smaller scale activity kept employment up, benefiting a broad range of almost exclusively local firms.

The value of new projects started in 2022 hit a five-year high, but this does not necessarily equate to good times.

“Because construction starts lag so far behind the decision to proceed, the construction industry is like the proverbial cruise ship in the ocean of the economy,” DeCouto explains.

“When the economy heats up, it can take a year or more for the industry to feel the impact after projects get from the drawing table to the job site.”

He warns of “clouds in the distance” such as rising interest rates and the possibility that demand might be cooling as people hesitate while making big decisions. Overall, DeCouto expects 2023 to provide similar employment and value of work levels as 2022.

The most high-profile job is The Fairmont Southampton, which includes renovation of the hotel and creation of nearby residential and tourism units.

It has faced delays and opposition from neighbours and environmentalists but, at the time of going to press, was expected to start this year.

DeCouto and Ewles believe the Fairmont’s importance goes far beyond the construction industry.

“It is incredibly important that it succeeds to signal to the rest of the world that Bermuda can support tourism projects of this scale,” Ewles says.

“In most countries, construction is a barometer of the health of the overall economy, and a project of this scale will bring benefits beyond the project itself.

“International businesses have spoken out about the need for more bed count and Bermuda needs to help keep this key pillar of our economy strong and growing.”

DeCouto notes 30 per cent of the construction industry workforce is already non-Bermudian, so a task of this size will require additional resources from off island.

But he adds: “No doubt there will be trickle-down benefits across a number of trades and firms, and the impact will almost certainly be positive for local firms.”

Other tourism-related work will include two five-storey hotel buildings on the edge of Rosewood Tucker’s Point in Hamilton Parish; the conversion of 40 hotel rooms into 18 suites at the White Sands Hotel in Paget; a tenstorey hybrid residential and tourism build in Warwick; and eight vacation villas, clubhouse and pool at Munro Beach Cottages in Southampton.

There’s also a new global headquarters for Brookfield Reinsurance in Front Street; three new three-storey warehouse buildings at Gorham’s in Pembroke; the conversion of Victoria Hall in Hamilton into a working urban farm; and the conversion of a dilapidated cottage into a meeting and horticultural centre inside the Arboretum in Devonshire.

DeCouto notes the Green family has bought the partially developed site at the Belvedere Building from West Hamilton.

“They are the best kind of developer for the Bermuda construction industry,” he says. “They use local firms and are continually investing in physical infrastructure.”

One of the biggest challenges for the industry has been the soaring price of concrete and block – up by more than 50 per cent in a year after a main local quarry ran out of material.

DeCouto is concerned the concrete supply chain has been monopolised by a few major players.

“I am very worried that these price increases will contribute to a lack of feasibility in development projects in Bermuda in the near future,” he says.

“The industry is still coming to terms with this. Many contractors and projects have just swallowed the increase due to contract terms, while other projects are either still negotiating or have reconsidered the volume of work or whether to go ahead at all.”

Ewles notes Bermuda is already an expensive place to build because of its geographical location.

“Anything that increases cost is problematic and will make potential projects less viable,” he says.

“There are many alternate forms of construction used around the world, but these have typically been unsuitable for Bermuda due to our code requirements regarding hurricanes and corrosion, and the high quality of building that results and the cost of importing these systems.

“They may now be more viable versus our traditional block and concrete methods and will need to be evaluated, but the cost of building is going to increase and that is not really good for anyone.”

Tully also points to potential problems with staffing levels due to Bermuda’s ageing, small population.

“It is increasingly difficult to find staff due to opportunities in other fields with less physical workloads,” he says.

“It is increasingly evident that contractors are retiring, and fewer general contractors are replacing them in the industry as well.

“Lack of a consistent, trade-based schooling or vocational programme is also hindering young people from getting any sort of experience or introduction to the trades, let alone trade certification.”

Yet, for those who get the basics right, he insists the future is bright.

“If you have the right attitude and transportation you’re going to be gainfully employed across the range of trades from masonry to drywall to home automation, and everything you can think of in between.”