Construction Makes Case As ‘Essential’ Industry Amid Coronavirus Lockdowns Across U.S.
By Randyl Drummer
CoStar Group
Published: Mar 22, 2020

California Gov. Gavin Newsom’s order last week to immediately close non-essential stores and businesses and to shelter in place prompted the nation's largest construction industry group to spring into action.

Within minutes of Newsom’s announcement Thursday night, representatives of the Associated General Contractors of California requested an exemption for construction companies from job site lockdowns in a state that employs more construction workers than anywhere else in the country.

Emphasizing construction’s essential role during a crisis, the group persuaded Newsom to "modify and clarify his executive order within an hour or so last night” allowing work at construction work site to continue, a spokesman for Associated General Contractors of America, the group’s parent organization, told CoStar News.

Associated General Contractors of America has responded to the COVID-19 crisis across the nation with the same triage procedures used by medical professionals, Chief Executive Steve Sandherr told members of the group and reporters during a webcast Friday. Those procedures include helping construction firms keep the doors open and keep their workers safe and "making sure that governments at all levels don't hurt us" by shutting down construction across the United States.

The California decision stands in contrast to decisions in other parts of the country. Boston Mayor Martin Walsh last week ordered construction sites to shut down for at least the next two weeks, idling millions of square feet of commercial and residential projects in a city where dozens of residents have been infected with the fast-moving virus. Other states, including Pennsylvania and South Dakota, have suspended highway and transportation projects to prevent spread of the virus.

Such bans could have dire effects in cities like Los Angeles, where 7.6 million square feet of office space is under construction, according to CoStar Market Analyst Ryan Patap.

"If state of local governments implemented such bans in Los Angeles County, it would delay numerous completions across the market," Patap said. "For projects that are mostly preleased, delays could adversely impact developer returns if lease commencements and hold periods get pushed back."

A survey this week of Associated General Contractors members found that 28% of respondents had been ordered to halt current projects and another 11% were told to suspend future jobs. Almost half said they had experienced project delays or disruptions due to shortages of either materials and equipment, labor or local government building inspectors to issue key project permits and approvals.

Developers can expect delays in processing of some building permits, zoning applications and inspections because many city halls and building departments in California are either closed or accepting applications only by appointment, according to Patrick Tuck, a land-use attorney with Oakland, California-based Wendel Rosen.

Tuck noted that some city building departments clarified their guidelines for what projects would receive priority treatment.

The Oakland Planning and Building Department, for example, updated its website to give priority to “housing projects, particularly affordable housing projects, and mixed-use projects that include housing.” Emergency repairs and reviews of existing projects would also receive priority, according to the Oakland building department web site.

Despite reports of shutdowns in other states, the construction industry has so far has avoided the disruptions experienced by restaurants, non-essential stores and other establishments and industries that have either closed voluntarily or been ordered to shut down, according to Ken Simonson, chief economist of the contractors' association.

“But we will start to see more of the supply chain glitches affecting our business, and we're expecting more government agencies to order that projects be halted in order to practice more social distancing, even though construction is vital in many cases," Simonson said. "You can’t just abandon a construction site.”

The general contractors’ association and building trades unions are encouraging state and local governments to declare construction as an essential industry because hospitals, cities or counties may need personnel to build temporary shelters, quarantine areas or facilities to treat COVID-19 patients. Construction companies would also need to mobilize quickly to respond to a hurricane or similar natural disaster.

“We need to have construction firms and workers in place to deliver on that,” Sandherr said. “It’s easier for construction workers to practice social distancing, and workers already wear protective gear. Also, construction companies already monitor work sites to restrict access to workers showing signs of illness.”