As 2020 kicked off, many firms across the commercial real estate engineering industry were poised for their best year ever. The Nevada economy was healthy, with growth across most industry sectors as new and expanding businesses created new development projects that required commercial real estate (CRE) engineering services. Metro areas were busy with private development and public works projects. Rural areas were seeing some private development, and municipalities were making infrastructure improvements.
The CRE engineering industry includes civil, geotechnical, and environmental engineering, construction materials testing, and structural engineering—everything from infrastructure that leads to new construction to construction itself, and all of those sectors were busy.
When COVID-19 caused the shutdown of nonessential businesses statewide, it looked like the year that started as the best ever for the industry might end as one of the worst. That didn’t happen.
Industry 2020
“The industry was steady before the pandemic, and right after the pandemic hit a year ago it just started continually ramping up,” said Vince Griffith, PE, president, Reno Engineering. The civil engineering firm works on everything outside a building, including roads, bridges, sewer plants and water systems. “From my perspective, and what we do in my firm, the industry followed the trajectory of the stock market. There was a dip for a minute when people were nervous right there at the onset, and it immediately bounced back and started going up.”
Civil engineering wasn’t the only sector that only hiccuped. “All sectors are going on all cylinders right now,” said Griffith. “I can speak mainly to the commercial industrial sector of the industry, or the economy, and how it’s doing, because that’s our clientele. But all sectors—warehouse, data centers and factories, manufacturing—it all seems to be hot right now.”
Did the CRE engineering industry slow with the advent of the pandemic? It depends on market sector.
“By March of last year, we were on track to have our best year ever,” said Greg DeSart, PE, CEM, president, Geotechnical & Environmental Services (GES). “Things were going crazy, things were really good.”
By Q3 and Q4, many private and commercial development projects were stalled or temporarily on hold. On the public infrastructure front, there was a lot of work on roads, bridges and schools, and that type of work stayed relatively steady through the end of 2020, said DeSart. Going into 2021, many stalled projects on the private development side started up again, and public infrastructure work got busier.
Both public and private projects are heating up again, apparently independently of each other. Southern Nevada is seeing water infrastructure projects. Northern Nevada is busy with the transportation, warehousing and apartment projects.
“During the pandemic, increased demand for online purchasing and those types of things, the demand for industrial warehouse has just gone really crazy,” said Brent Wright, PE, SE, CEO, Wright Engineers, a structural engineering firm. “It was trending that way before, but it hasn’t slowed down. Residential multifamily is very busy and has been for a while. Those are the two that are the types of work we do that are the busiest.”
“There’s a lot of public infrastructure projects that didn’t really get stalled because of COVID. They kept going strong and they continue to be going strong, so I see them as independent of private development work,” said DeSart. Private development is more concerned about funding and viability of projects, whether they’re going to be able to fill up buildings and meet projected numbers. There was a lot of uncertainty in the second half of 2020, so those projects stalled. As the uncertainty went away with vaccinations and numbers improving with COVID, confidence began to rebuild and private development projects fired up again.
Different engineering firms saw different responses to the pandemic. Some projects stalled at the beginning, when nobody understood what was going on yet. “Folks didn’t necessarily understand what the financial institutions were going to do,” said James Bristow, PE, president, Western Region, Universal Engineering Sciences (UES). UES is a consolidation of a dozen engineering firms acquired over the last 18 months.
Converse Consultants, which performs due diligence phase 1 site assessments required by banks when commercial properties are being bought and sold, is busy now and was busy when the pandemic hit, right up through Q4 2020.
“Then the slowdown started to hit in the fourth quarter of 2020 and into the first quarter of 2021, but with the return and opening of business, we’ve noticed the second quarter of 2021, things are really picking up,” said Kurt Goebel, CEM, senior vice president, Environmental Division manager, Converse Consultants.
Goebel found the impact on clients disproportionate. Nevada’s hospitality industry was obviously impacted by the pandemic-caused business closures, and projects related to that field slowed or stalled.
“What continued on were projects that were related to the construction industry,” said Goebel. “Those continued in force throughout the pandemic. It never slowed down.” What impacted Converse Consultants, in addition to hospitality, was a slowdown in land transfers and property transactions, despite favorable interest rates. As a result, there was a lot less due diligence work at the end of 2020, though like other parts of the industry, it’s picking back up.
From a structural engineering standpoint, Utah and Arizona never really slowed down during the pandemic. California and Nevada did. “It feels like Nevada is recovering a little more slowly than other areas we have offices in,” said Wright. “There are lots of things going on, but there seems to be a lot of inertia. Before the pandemic things were going crazy. There was huge optimism and the economy felt white hot. We were poised for our best year ever. Now there’s some hesitancy.”
That hesitation may be in part due to the astronomical cost of some construction materials, like wood, and the fact that others are so hard to source the firm is asked to find alternative ways to frame structural systems, some of which weren’t used before because they’re more expensive.
Despite concerns like costs, scarcity of land, and the hiccup caused by COVID, new businesses continue to locate in Nevada.
“The industries that have been looking at Nevada for a new home or for expansion have just been continually growing since the beginning of the pandemic,” said Griffith. Northern Nevada’s location, with easy access for distribution across the West, lends itself to warehousing and storage. Manufacturing is heating up, though most companies looking at the area want their interest kept secret, including the industry sector. “They’re afraid if they announce their interest, their competitors will know they’re considering expanding on the West Coast. Many industries are looking at the region in terms of what it might cost to build a facility, what kind of water and sewer requirements they need, and they’re researching the workforce,” Griffith added.
Change
As an industry, CRE engineering seems to have experienced more change than damage from economic fallout caused by COVID. “We had a crisis of confidence going into the second half of last year, especially as some of our projects slowed down,” said DeSart.
“We went into 2021 very, very uncertain about what was going to happen because we’d gone from our banner year at the start of 2020 to things slowing down in the second half. We went into 2021 thinking things could get worse, or they could pass an infrastructure bill at the federal level and we’d be busier than we ever have been. Or the pandemic could keep going and we could really see things get bad. Four months in, it’s more along the lines of things getting better instead of things getting worse, and we’re really grateful for that. We ultimately ended up coming out of it whole, but was our confidence shaken? Absolutely.”
President Biden’s proposed $2 trillion infrastructure bill could help the industry shake lingering economic effects of COVID. “The bill is focused on revitalizing the U.S. transportation infrastructure and water systems, and things like that,” said Bristow. It’s work engineers have wanted to get to for years.
“If the bill passes, we expect transportation projects, water infrastructure, wastewater infrastructure, for all of it to go crazy over the next two to five years,” said DeSart.
Recovery
The slowdown may be over for CRE engineering in Nevada, but the pandemic isn’t.
“If you read the news and hear press releases, it sounds like things are getting back to normal,” said DeSart. “But the Governor hasn’t lifted a lot of the restrictions in terms of indoor [activities] and how to operate in an office environment. The CDC hasn’t changed a lot of their restrictions. We’re really close. We’re almost back to normal, but not quite.”
Industries are recovering at different speeds. Retail, for one, is lagging, possibly because so much of it has moved online. Bristow believes retail is alive and well, just different. “Retail is being built. Maybe it’s not a big box with a lot of products on the shelves. It’s become something more agile. When you think about retail in the current concept, the logistics and industrial that support it, those are retail, it’s just a new style of retail.”
The restaurant industry isn’t building, at least in Q2 2021, and the CRE office sector was somewhat overbuilt before the pandemic caused a shift to staff working remote. That could change as vaccinations increasing and COVID cases decreasing allow staff to return to offices, but recovery may be slow.
“I can’t imagine people are going to continue working from their living rooms and kitchens forever,” Griffith said. “Maybe 20 percent of the workforce is better off that way, but the majority is not going to work from home. However, Zoom is a part of everybody’s life now.”
Industry 2021
Zoom fatigue, and fatigue brought on by the use of all platforms for online conferencing, increased as the pandemic passed the one year mark at the end of Q1 2021. But not all changes to business brought about by the COVID-19 pandemic have been negative.
Online conferencing saves time. When there’s no need to drive across town to the next meeting, the next meeting can happen instantly. People still need to gather, if for no other reason than it’s harder to gain trust in new business relationships through virtual meetings, Griffith said; but for industry colleagues with history, online meetings are both efficient and environmentally positive.
Other positive changes made during quarantine include industrywide streamlining of the review process. When no one could touch physical materials and pass them on for redlining and approval, the system changed. Plans are now shared so every department and agency that needs to review can do so simultaneously. “It knocks out all the wasted time of one piece of paper that had to travel to five different desks before getting lost,” said Griffith.
In January 2020, GES was still using little green routing slips. “It sounds like the 1950s,” DeSart said. Plans moved from desk to desk and the routing slip was initialed. A year of not being able to handle documents safely and the procedure went virtual. “Literally, we had to change without written procedures, just figure it out and adapt on the fly.”
Some changes that could take place in the industry would be less welcome. “I’m hearing a lot of concern about increases in taxes and a lot of talk about municipalities increasing fees for this or that,” said Goebel. “So the industry is being vigilant in terms of taking care of its clientele to make sure those costs aren’t unduly incurred by the industry. There has been a lot of relief but that relief has to be paid for, and who’s going to pay for that and how is that cost going to get passed down? Some of those concerns are coming through in terms of taxes and increased fees.”
Despite concern over potential new taxes and fees, stalled projects are coming back to life, new projects are breaking ground, and the CRE engineering industry is almost back to Q1 2020 activity.
“Everything we were doing a year ago, we’re doing now,” said Bristow.
“As we slowly emerge from COVID I think there’s a big sense of optimism on the engineering front that things are going to continue to be good for the foreseeable future,” DeSart said.
