Maine’s construction industry remains strong and major private developments are still on track as the coronavirus pandemic hammers other sectors of the economy.
But the future of construction and development in the state remains uncertain. New hotel, restaurant and retail developments are unlikely in the immediate future as those economic sectors face huge challenges. The likelihood of state and local revenue shortfalls puts new infrastructure spending in doubt. The threat of a resurgent coronavirus that could upend economic progress lurks in the background.
“Maine has done better than most states so far, but we are heading into a rough period for non-residential construction,” said Ken Simonson, chief economist for the Associated General Contractors of America.
Maine’s construction industry employed about 29,300 people this August, just 300 fewer than last year, according to the federal Bureau of Labor Statistics. Construction was designated an essential industry and allowed to continue operating during a statewide stay-at-home order this spring, preventing job losses witnessed in places such as New York, Vermont and Boston that stopped construction work as a precaution.
But the industry’s resilience depends on what happens next, Simonson said. About 60 percent of respondents to a national survey in August from the contractors’ association said an upcoming project was canceled, while only 12 percent said they had secured additional work. In June, just 32 percent of respondents said work had been canceled.
“Not only is that a horrible ratio, both of those things are going the wrong direction compared to June,” Simonson said. “Nothing makes investors more cautious than uncertainty and reversal of what they were expecting.”
In Maine, the economic downturn has neither stopped new construction nor dulled developers’ appetite for major new buildings and housing developments.
Developers behind The Downs in Scarborough, a 500-acre redevelopment of a horse-racing track, plan to start pouring concrete this month for condominium and apartment buildings and new single-family homes, said Roccy Risbara, president and CEO of Risbara Bros.
Housing units went quickly before construction started – 19 of 24 planned condominiums are sold already – and Risbara said he expects to move forward quickly with nearby light industrial and commercial building.
“We are pretty fortunate – this COVID thing is really odd in the fact that we are as busy as ever, and there are other segments of the business community that are dead,” Risbara said.
Maine still faces a severe housing shortage – existing home prices have soared thanks in part to low inventory and new competition from people relocating to Maine from out of state.
“That is where we are focusing on right now and where there seems to be plenty of pent-up demand,” Risbara said.
Some sectors of the state, such as restaurants and hotels, have been hit hard, and the state unemployment in August was likely around 10 percent, according to state economists.
Downtown Portland has seen a rash of new housing proposals, including an 18-story residential tower on Federal Street with 260 mostly market-rate apartments proposed last month by Redfern Properties.
Portland will remain an attractive place to live and work throughout and after the pandemic, said Redfern owner Jonathan Culley. The biggest challenge for projects such as his are persistently high construction prices, driven largely by high labor costs. Non-residential building costs remained at historic highs in the second quarter despite a slight decrease this spring, according to Turner Construction Co.’s quarterly construction cost index.
“While there appears to be a lot of projects proposed and permitted, not all of them are going to happen,” Culley said. “Housing, and really middle-class housing we are proposing, is among the most viable sector. It is very clear people will still need housing.”
Even some non-residential projects are still going strong, including the Rock Row development in Westbrook. The multi-use complex includes apartments, retail and entertainment centered on a disused quarry.
Retailers still have a strong interest in the complex’s outdoor-focused streetscape, said Greg John, a spokesman for developer Waterstone Properties. The company is moving ahead with the second phase of the project, which includes a retail development, and it still plans to build apartments, office space and a food and beer hall, he said.
“Retailers and guests like something unique – that was happening even before the pandemic,” John said. “Now, during the pandemic, being outdoors and embracing nature and having trails and a boardwalk around the quarry, that has actually helped us.”
Public construction, particularly road and bridge projects, actually got a boost in 2020. The Maine Department of Transportation was able to expand its road projects and finish work faster because traffic volumes were so low, said Transportation Commissioner Bruce Van Note.
But what the coming years hold is less certain, he added. In April and May, traffic fell to 50 percent of what it had been the year before but has since recovered. In the third week of September, vehicle miles traveled was just 6 percent below what it was in 2019.
“In a normal environment, we would be screaming from the rooftop about catastrophic cuts; it would be one of the biggest drops ever,” Van Note said. “But in a year with coronavirus, that is a bright spot.”
Less traffic means fewer fuel tax dollars, which fund much of the state’s highway work. The department projects a shortfall of about $40 million in the current budget and another $30 million starting next year – roughly 4 percent of its capital budget, Van Note said. The pandemic’s impact is far less than more than the $125 million loss projected this spring.
Other uncertainties make it harder to predict the impact on state highway projects. The department used about $33 million from a $105 million bond package to fund this year’s expanded work plan, and borrowing the same or more next year may be necessary to cover its work, he said.
Federal funding, including the possibility of another stimulus package and passage of a federal budget, also could help fill projected shortfalls, but both are uncertain, Van Note said.
“Honestly, we’ve become quite accustomed to that uncertainty,” he said. “We are doing everything we can to make sure we are using the money wisely.”
The future of the downtown office market is in question, too. Prior to the pandemic, developers planned to add new high-end offices in Portland, and several large companies including Wex Inc. and Sun Life Financial were gearing up to build new campuses in and around Portland. Both companies in August said their plans were still on track.
New office construction typically occurs when the market’s vacancy rate drops below 4 percent, said Nate Stevens, a commercial real estate partner at The Boulos Company in Portland. Last year, the vacancy rate for Class A office space in downtown Portland was 0.4 percent. Now, it is closer to 7 percent, Stevens said. It might take years to fill that space again, especially since so many white-collar workers are still working remotely. With so much uncertainty about the virus and the economy, companies also aren’t sure what kind of space they’ll need in the near future.
“The combination of those two is probably going to create a drop in new construction,” Stevens said.
It is too soon to fully appreciate the changes that the coronavirus pandemic will have on construction, development and the overall economy, said Charlie Colgan, a professor emeritus at the Muskie School of Public Service at the University of Southern Maine in Portland.
“I’ve been arguing since the beginning of this event, when we moved huge portions of our economy online and did it within a couple of weeks, that it was inevitably going to fundamentally alter our relationship to physical space,” Colgan said.
That means large swaths of office space, restaurant dining rooms and retail storefronts are collecting dust amid social distancing rules and remote work. It also raises huge questions about how much new space will be needed in future years.
Unlike previous recessions, the financial side of the economy has stayed strong, thanks in part to monetary policy that has pushed interest rates down. Instead, economic success is dependent on managing the health threat from the coronavirus, Colgan said.
“Coming out the other side of this, one factor is the virus; the other factor is that we just changed our fundamental economics of doing business in dozens of different ways,” he said. “Whatever lies on the other side of the recovery is going to be really different than what was the case before.”