For many, the dawn of 2020 signaled a new decade of hope and prosperity. However, the year closed with a shocking twist: a global death toll topping 1.6 million (including 300,000-plus in the United States) that stemmed from the outbreak of COVID-19, a highly contagious and unpredictable disease originating in Wuhan, China, in late 2019. Along with the devastating number of deaths, this once-in-a-century health crisis created a worldwide economic slowdown that shattered the longest-recorded economic expansion in America’s history.

Before COVID-19 led to widespread supply chain disruptions and financial crisis, the national economy was expected to rise an average of 2 percent annually through 2046, with a notably higher 2.8 percent increase for Texas, per projections noted in the Texas Comptroller’s 2019 Economic Forecast. Not surprisingly, the sharp economic contraction associated with the pandemic could have long-term fiscal implications – even for an economic powerhouse like the Lone Star State.

In a September 2020 public statement, Texas Comptroller Glenn Hegar commented on the myriad uncertainties facing the state’s revenue estimators. “Predicting the course of Texas’ enormous, complex, and dynamic economy is a difficult task in the best of times,” Hegar remarked, “and much more so in the face of a truly unprecedented event such as the pandemic.”

Last month, Texas Workforce Commission (TWC) data showed that nearly 4 million unemployment claims had been filed in Texas since March 2020, following President Donald Trump declaring the novel coronavirus a national emergency. Unemployment rates for the year reached a high of 13.5 percent in April – when the peak of COVID-19 impacts occurred – but dipped to 6.9 percent by the start of the fourth quarter with the addition of more than 136,000 private-sector jobs in October (the latest data available at the time of reporting).

Despite the extraordinary challenges fueled by COVID-19, Texas still stands as a nation-leading hub of robust job creation, population growth, and cultural diversity. These and other factors strongly position the state to withstand various levels of economic volatility. TWC Chairman Bryan Daniel comments further, “While the unemployment rate captures only a snapshot of our economy at a specific moment in time, the job growth we have seen … shows an enduring strength in the state’s economy.”

Anirban Basu, Chief Economist of the Associated Builders and Contractors (ABC), points out that the current recession, though “very severe,” is extraordinarily different from the Great Recession that occurred in the late 2000s. “That was a demand shock induced by sizable declines in asset prices, including home prices,” he explains. “The current period of economic stress is a supply shock, with social distancing mandates rendering it difficult for manufacturers, retailers, restaurants, and occasionally contractors to deliver services.”

He further characterizes the recovery from the 2008-2009 financial crisis as agonizingly gradual, in comparison to the more rapid initial phase of recovery from the February-April 2020 downturn.

“Such is the nature of rebounds from supply shocks in many instances,” he adds. “While the economy will struggle during the early phases of 2021, there will be a sharp recovery at some point in 2021 once vaccinations become broadly available.”

According to an ABC news release published last month, a significant preexisting backlog of projects helped to stabilize construction markets in 2020 – even as restaurant, retail, hotel, transportation, tourism, and other sectors suffered massive setbacks. Recently, however, the industry’s performance has begun to weaken due to project cancellations and postponements and fewer bidding opportunities.

Basu notes that 2021 is currently shaping up to be a challenging year for many contractors. At press time, ABC’s Construction Backlog Indicator had plunged to 7.2 months in November 2020, the hardest-hit sector being heavy industrial at 4.5 months compared to 7.6 months in October 2020.

“The prospect of additional lockdowns hasn’t helped, with many investors remaining too uncertain to bring the next generation of commercial projects to market,” Basu stipulates. Tightening lending conditions and financially devastated market segments are also contributing to the lack of construction activity. “A number of contractors also report project delivery interruptions as workers become infected. That has helped to dampen confidence, with contractors collectively indicating expectations for lower sales and profit margins during the first half of 2021,” he adds.

Though the first half of 2020 reflected a deep drop in construction starts due to the pandemic, several markets are expected to start recovering in 2021, albeit along a slow and uneven trajectory.

“Business and consumer confidence will improve over the year as further stimulus comes in early 2021 and a vaccine is approved and becomes more widely distributed, but construction markets have been deeply scarred and will take considerable time to fully recover,” says Chief Economist Richard Branch of Dodge Data & Analytics.

According to the 2021 Dodge Construction Outlook, total U.S. construction starts are anticipated to reach $771 billion in 2021, a 4 percent increase over the previous year’s estimated $738 billion. Overall, market intelligence experts foresee a 5 percent increase in residential, a 3 percent increase in nonresidential, and a 7 percent increase in nonbuilding construction. “Only the residential sector, however, will exceed its 2019 level of starts thanks to historically low mortgage rates that boost single-family housing,” Branch notes. Multifamily construction, on the other hand, is predicted to drop 1 percent in dollar value while the number of units started falls 2 percent to 484,000, due to an oversupply of high-end construction in large metro areas and declining rent values.

Of note, the commercial building sector will likely experience a 5 percent gain in construction starts, particularly related to warehouses and data centers. This infrastructure is being delivered in response to the booming e-commerce market and an increasing focus on digitization. Other segments with expected gains for the year include health care and electric utilities/gas plants. A 35 percent increase is expected for the latter sector, as several large liquified natural gas export facilities and more wind farms are slated to commence construction in 2021.

In its annual 2021 economic forecast, the American Road & Transportation Builders Association (ARTBA) predicts the overall value of transportation infrastructure work in the U.S. will shrink 5.5 percent in 2021, to $278.1 billion. The expected market contraction follows a record year for most transportation sectors in 2020 ($294.2 billion), as nearly all states classified transportation construction as an essential business sector.

“Not surprisingly, the 2021 market reflects the broader COVID-19 economic contraction that began in February 2020,” says ARTBA Chief Economist Dr. Alison Premo Black. She adds that market growth could resume in 2022, provided that economic conditions improve and travel demand in some sectors begins to return to pre-recession levels.

In 2021, the real value of public highway, street, and related construction investment by state transportation departments and local governments is anticipated to decline $3.1 billion, or 4 percent, to $74.5 billion. The pace of bridge and tunnel construction work is forecast to be $21.7 billion, a 2 percent decrease that follows a steep 20 percent decline in 2020 – these drops reflect several broader market trends including a focus on smaller structures, reports ARTBA. Slight declines are expected for public transit and rail construction ($24.2 billion) and subway and light-rail investments ($10.9 billion) while investments by private Class 1 freight railroads remain flat at $13.3 billion.

The value of airport construction (including terminals, runways, and related work) is expected to decline 17 percent, from $24.6 million in 2020 to $20.5 billion in 2021, before resuming growth in 2023 and beyond. Declines in airport terminal and related work (including structures like parking garages, hangars, air freight terminals, and traffic towers) and runway work are likely to decrease to $15.8 billion and $4.8 billion, respectively.

One high note in ARTBA’s forecast is the continued rise in port and waterway investments. In 2021, this sector of construction is projected to increase slightly to $3.9 billion, up from $3.8 billion in 2020 and $3.4 billion in 2019.

In Texas, meeting statewide demands associated with population and economic growth will continue to escalate challenges related to building, maintaining, and upgrading infrastructure systems. Such is the case for burgeoning places like the Texas Triangle as well as Laredo, El Paso, and the Rio Grande Valley, all of which are experiencing severe traffic congestion and poor travel time reliability along their main highway corridors.

The 2021 Unified Transportation Program (UTP), approved by the Texas Transportation Commission in August 2020, allocates more than $74 billion to approximately 8,000 planned transportation projects in various stages of development over the next decade. Three strategic goals – promoting safety, preserving assets, and optimizing performance – serve as a guide to project prioritization.

According to ARTBA, states are expecting significant shortfalls in transportation revenues through 2024. Right now, Texas is projected to see a $4.58 billion budget shortfall in 2021, including a 17 percent revenue decrease for the State Highway Fund, the source of 30 percent of funding for the UTP’s fiscal year 2021-2022 projects.

Despite funding uncertainties, TxDOT reports no current impacts to delivering active projects on its docket. “We’ll know more about impacts to future projects in early 2021 when the comptroller issues his next budget estimate for the state, and will adjust accordingly as we do each year to develop our 10-year Unified Transportation Program. This 10-year project planning document allows us to adjust with respect to any revenue increases or decreases,” TxDOT officials indicated in an email to Texas Contractor in late 2020.

For insights about projects or programming updates in the 2021 UTP, visit TxDOT’s website for more information. Also, for a summary of TxDOT’s biggest highway construction projects slated to begin this year, check out the sidebar titled, “TxDOT’s Top 10 List of Highway Construction Projects.”

Escalated levels of unemployment have significantly impacted economic recovery in the U.S., including construction markets. In November 2020, the industry showed a slight improvement by adding more than 7.3 million new jobs (a 0.4 percent increase compared to October). However, an analysis by the Associated General Contractors of America (AGC) estimates that 732,000 former construction workers still remained unemployed. AGC officials caution that pandemic-induced project cancellations, which resulted in the loss of 1.1 million U.S. construction jobs in March and April 2020 alone, threaten to undermine future job growth.

“The future is far from certain for the industry,” notes AGC’s Chief Economist Ken Simonson. “The nonresidential building and infrastructure segments are likely to shed jobs again amid an increase in coronavirus case counts unless Congress acts quickly to provide needed relief.”

The Economic Policy Institute’s (EPI’s) Director of Research, Josh Bivens, shares a similar sentiment, emphasizing that an “overwhelming policy response” must occur in order to “stop the economic bleed” and return the nation to its pre-pandemic economic trajectory.

Commentary from an EPI press release published last November states further: “Once a strong recovery is secured with a right-sized relief and recovery package, policymakers will still have lots of work to do to ensure we build an economy that generates faster and fairer growth. Key tasks in this vein include strengthening social insurance programs, protections for workers, and key public investments. In short, focusing on an ambitious relief and recovery package is not a substitute or a distraction from the longer-run effort to create a fairer U.S. economy … it is instead a crucial first step.”

Looming tax bills for firms that have utilized Paycheck Protection Program loans is another area of concern for the building industry. “The Trump administration is seeking to undermine the benefits of the Paycheck Protection Program by rewarding firms that saved jobs with a massive tax increase,” explains Stephen Sandherr, CEO of AGC. “These new taxes, coming on top of greater market uncertainty as coronavirus cases surge, will make it hard for many construction firms to retain current workers, not to mention add new ones.”

Sandherr offers further remarks on AGC’s plans to work alongside Congress and the incoming Biden administration to rebuild the economy by increasing infrastructure investments.

“As always, AGC is focused on educating our elected officials on how new infrastructure investments benefit the nation by putting people to work, boosting demand for equipment and technology, and making our economy more efficient and effective,” he says. “In addition to rebuilding our economy by restoring infrastructure, we want to seek out ways to revive the private sector. To reassure employers that now is a good time to invest and expand, the presidential administration must resist left-wing pressure to reimpose regulatory burdens that would slow down or impede building efforts.”

Though the pandemic presents a host of challenges, many industry professionals acknowledge that this cataclysmic event is also producing unexpected opportunities to evolve the built environment, like the broad adoption of technology after the outbreak of COVID-19.

In addition, there has been increased emphasis on creating more resilient, sustainable, and socially equitable transportation options. Forward-thinking transportation technologies – like charging infrastructure for electric vehicles and connected infrastructure systems – are touted to pave the way to an integrated transportation network that enhances mobility, improves operational efficiencies, and protects human life.

The following excerpt from a recent article penned by Gregory Winfree and Joe Zietsman of the Texas A&M Transportation Institute nicely sums up the “new normal” that will likely define post-pandemic transportation construction: “This public health crisis will permanently reshape our behaviors in numerous ways. Consequently, our future transportation system will not – cannot – be a simple extension of its past. We need something better than the normal we were accustomed to. After all, it’s our modern transportation system that enabled the spread of the coronavirus in the first place. There’s clearly room for improvement in our post-modern approach to getting ourselves and our stuff from points A to B and beyond – safely, smoothly, and securely.”

In a recent interview with Texas Contractor, Anirban Basu, Chief Economist for the Associated Builders and Contractors, shared key insights on how the COVID-19 pandemic is affecting nonresidential construction in the United States.

TC: COVID-19 drastically altered the dynamics of many market sectors in 2020. In your opinion, what was one of the biggest impacts to nonresidential construction?

Basu: COVID-19 impacted the nonresidential construction sector in many ways. By far the most important impacts pertain to behavioral changes in the ways in which we work, shop, and gather. Economists have determined that about 37 percent of Americans can do their jobs completely from home. What is more remarkable is that many of these workers are more productive working from their home offices than they were while at the office. There are a surprising number of distractions at work, including the fact that the workday often begins with a lengthy, stressful commute. While there are certainly distractions at home, many workers have been less stressed by child care responsibilities, have been less likely to be dragged into impromptu meetings, and have been better able to focus on the tasks at hand.

TC: What are some other major impacts related to the pandemic?

Basu: COVID-19 has induced more online shopping, leading to a surge in fulfillment center construction as brick and mortar languishes. Among the declared bankruptcies during the crisis are those of Neiman Marcus, JCPenney, J. Crew, and Brooks Brothers. None of that is good for commercial construction. The pandemic also created more momentum in terms of online meeting platforms, like Zoom and Microsoft Teams. This will impact the business travel industry for the foreseeable future. Finally, the pandemic battered state and local government finances, leaving less money for infrastructure. The national debt has ballooned by virtue of a sea of non-infrastructure-related expenditures, ultimately leaving fewer federal resources available for infrastructure investment going forward. That said, a near-term stimulus with a significant infrastructure component is likely during the months ahead.

TC: Describe some of the long-term implications of the pandemic on construction.

Basu: Among the big winners are owners of older office buildings and certain subcontractor segments. During the previous growth cycle, many firms moved into Class A/A+ buildings, in part as a recruitment and retention tool. But with unemployment higher today and more firms seeking to cut real estate expenditures, there is an opportunity for Class B building owners to attract more prime tenants. This may require significant upgrades to buildings, including HVAC systems, given that the virus can spread through air handling systems.

TC: What factors might bolster construction industry growth in 2021? Alternatively, what factors might constrain it?

Basu: With the prospects of widespread dissemination of a vaccine sometime this year, a resurgence of economic growth will help support more nonresidential construction going forward. However, the near-term outlook is not especially positive. Credit conditions have tightened, commercial real estate fundamentals are in tatters, state and local government finances have been compromised, and infection rates are skyrocketing. A stimulus package will help, but many contractors will suffer the outrageous slings and arrows of project postponements and cancellations.

TC: How difficult will it be for the construction industry to bounce back, if no additional stimulus funding becomes available?

Basu: If American policymakers fail to pass additional stimulus, the outlook for nonresidential construction in 2021 is bleak. Even with stimulus, there are some difficult quarters to come. But given the expected rapid healing of the economy at some point in 2021, the stage should be set for much better nonresidential construction spending dynamics in 2022 and/or 2023.

#1
Project Location: I-35 in Bexar/Guadalupe/Comal counties
Estimated Cost: $1.6 billion
Project Delivery Method: Design-Build
Projected Let Date: June 2021
Project Description: A proposed expansion of approximately 19.5 miles of I-35, from I-410 South to FM 1103 in Bexar, Comal, and Guadalupe counties. The project involves construction of two non-tolled, 15-mile-long bridges (elevated lanes) between the I-35 mainlanes and frontage roads from I-410 South to FM 3009. The elevated lanes will provide one HOV lane and two general purpose lanes in each direction and offer direct connections to I-410 South, I-410 North, Loop 1604 West, and Loop 1604 East. The proposed improvements between FM 3009 and FM 1103 will include at-grade widening of the mainlanes for the addition of two general purpose lanes, as well as incidental construction to transition the elevated lanes and connectors with the existing highways.

#2
Project Location: I-820, from I-20 to Brentwood Stair Road in Tarrant County
Estimated Cost: $1.2 billion
Project Delivery Method: Design-Build
Projected Let Date: September 2021
Project Description: TxDOT is conducting a study to update the preliminary design and environmental assessment for proposed improvements to the interchanges at I-820, I-20, and U.S. 287 called the Southeast Connector. The study limits of the project include I-20 (from Forest Hill Drive to Park Springs Boulevard), I-820 (from I-20 to Brentwood Stair Road), and U.S. 287 (from Bishop Street to Sublett Road).

#3
Project Location: I-35E, from I-635 in Dallas County to Denton County line
Estimated Cost: $708.3 million
Project Delivery Method: Design-Build
Projected Let Date: August 2021
Project Description: Phase 1 of the I-35E project, known as the I-35E Managed Lanes Project, began in 2013 and was completed in 2018. TxDOT is now focused on Phase 2, which covers the southern segment of I-35E in Dallas County, from I-635 to the Denton County line. The project will reconstruct and widen the mainlanes from six to eight lanes, reconstruct the two existing, reversible tolled managed lanes and frontage roads, and improve several intersections.

#4
Project Location: I-69, from SH 288 to Spur 527 in Harris County
Estimated Cost: $269.4 million
Project Delivery Method: Design-Bid-Build
Projected Let Date: September 2021
Project Description: The project consists of widening I-69 from six mainlanes to 10, between east of the Graustark Street bridge and west of SH 288. The mainlanes are currently above ground (on a bridge over the local streets). Local streets in the project zone will remain at ground level, and the new mainlanes will be below the local streets. Segments of frontage roads will be added on both sides of I-69.

#5
Project Location: 365 Tollway, from FM 396 to US 281 in Hidalgo County
Estimated Cost: $255 million
Project Delivery Method: Design-Bid-Build
Projected Let Date: April 2021
Project Description: This 12-mile project consists of building a four-lane, controlled-access tolled facility to redirect overweight trucks to the tolled roadway. TxDOT is constructing jointly with the Hidalgo County Regional Mobility Authority.

#6
Project Location: I-35, from south of Spring Creek Road to US 82 in Cooke County
Estimated Cost: $214.6 million
Project Delivery Method: Design-Bid-Build
Projected Let Date: February 2021
Project Description: This project consists of upgrading the existing four-lane freeway to a proposed six-lane facility currently. Structures, retaining walls, and ramps will be built to accommodate what will ultimately become an eight-lane facility. Portions of the project include converting existing two-way frontage roads to one-way frontage roads and completing gaps to allow for continuous frontage roads throughout the project. Some interchanges within the project limits will be reconstructed to allow I-35 to cross over. Various ramp modifications will be provided along the corridor as well.

#7
Project Location: I-10 – Cardinal Drive interchange in Jefferson County
Estimated Cost: $208 million
Project Delivery Method: Design-Bid-Build
Projected Let Date: October 2021
Project Description: The proposed 3-mile project is anticipated to improve mobility, reduce congestion, and enhance emergency evacuation efforts. It includes widening and reconstructing I-10 from four to six lanes (from Walden Road, also known as County Road 131) to the Union Pacific Railroad/Hollywood overpass), constructing continuous frontage roads (including sidewalks), building two-lane direct connectors (elevated flyover ramps) where I-10 and U.S. 69 converge, and relocating existing I-10 ramp locations. The project will also add aesthetic improvements, expand intelligent transportation systems, and improve drainage patterns.

#8
Project Location: I-45, from SH 19 to SH 30 in Walker County
Estimated Cost: $206.2 million
Project Delivery Method: Design-Bid-Build
Projected Let Date: September 2021
Project Description: This project will reconstruct and widen I-45 from four lanes to six lanes in the city of Huntsville in Walker County. The project includes the complete reconstruction of pavement and drainage structures, two overpass bridges, and frontage roads as well as new safety lighting along the interstate.

#9
Project Location: Loop 1604, from I-10 to US 281 in Bexar County
Estimated Cost: $187.8 million
Project Delivery Method: Design-Bid-Build
Projected Let Date: June 2021
Project Description: This 19.7-mile project consists of reconstructing and widening the existing facility from four to 10 mainlanes, including two HOV special-use lanes, to enhance capacity and improve safety.

#10
Project Location: Loop 1604, from SH 16 to I-10 in Bexar County
Estimated Cost: $185.5 million
Project Delivery Method: Design-Bid-Build
Projected Let Date: April 2021
Project Description: This 5.3-mile project consists of reconstructing and widening the existing facility from four to 10 mainlanes, including two HOV special-use lanes, to enhance capacity and improve safety.