Against the Trend: Six Owner Projects Continue in the Construction Industry's Most Challenging Sectors

There is no doubt that under the impact of the COVID-19 pandemic, some non-residential building sectors have suffered far more severe blows than other industries.

Since last February, the surge in e-commerce has driven demand for warehouses and data centers, becoming a bright spot in the construction industry; however, sectors such as hotels, office buildings, and retail have fallen into deep trouble.

Taking the hotel industry as an example, business travel has nearly come to a standstill, and although leisure travel rebounded somewhat during the holiday season, it remains far below normal levels, resulting in extremely bleak hotel construction spending. According to Dodge Data & Analytics, hotel construction spending fell 50% year-over-year as of November 2020.

"The hotel industry is the hardest-hit market segment in construction," said Anirban Basu, chief economist at Associated Builders and Contractors, in a recent press release. "As more Americans get vaccinated, leisure travel is expected to rebound, but business travel may take years to recover. This bodes poorly for hotel construction located near central business districts or airports with large meeting spaces."

In the retail sector, according to Dodge data, construction starts among the top ten chain retailers fell 15% to $1.876 billion; as of November, spending across the entire retail sector was down 28% year-over-year. Office building construction starts also declined 27%, as companies of all sizes—including large construction firms—reassessed the office space they actually need after learning to manage remote employees.

Despite the challenges, some projects continue to move forward at a pre-pandemic pace, thanks to the firm confidence of owners and developers in the long-term prospects of the industry. The following highlights several landmark projects still underway in these hard-hit sectors.

citizenM

During the pandemic, Dutch hotel chain citizenM adopted an aggressive expansion strategy for U.S. projects. Its Los Angeles project is nearing completion, following openings in Washington, D.C., and Seattle last year. The company is currently building new hotels in Boston and a second in Washington, D.C.

The company operates 20 hotels across three continents and plans to expand to 36 within the next three years, without scaling back its plans due to the pandemic.

"We typically view investments in terms of centuries and extend our investment horizon as long as possible," said Ernest Lee, managing director of development for citizenM North America. "So when the pandemic hit, we quickly conducted a critical analysis of our project pipeline and then asked ourselves: Has our business undergone a structural change? Our answer was: No, people will eventually resume traveling. It's a matter of when, not if."

In addition to strong financial backing supported by Singapore's sovereign wealth fund, citizenM was also able to take advantage of the more competitive construction market environment in 2020.

"The market has become more competitive, purely due to supply and demand dynamics," Lee said. "The number of commercial project bids has dropped significantly, and contractors need business, so they are willing to bid from a different perspective."

Atwell Suites by IHG Hotels & Resorts

Last November, IHG Hotels & Resorts announced that its first Atwell Suites hotel had broken ground in Miami. The 90-room hotel, expected to open this summer, is located in Miami's thriving Brickell district. It is part of a new high-rise mixed-use building that also includes a 140-room Hotel Indigo Miami Brickell.

Despite the pandemic, Miami remains one of the few areas where development activity has largely been unaffected.

The Atwell Suites brand was launched in 2019 and currently has 20 projects in planning or development across the U.S., including Austin, Texas; Charlotte, North Carolina; Denver; and Phoenix. The company said in a statement that it will begin construction on more Atwell Suites projects in the coming months.

"The all-suite segment is growing rapidly and has proven highly resilient, with strong owner interest throughout 2020," said Karen Gilbride, vice president of avid hotels and Atwell Suites at IHG, in a statement. "We are excited to continue the momentum of this brand and look forward to welcoming our first guests next year."

Catalyst Office Building

The Catalyst building, a five-story, 159,000-square-foot office building constructed with 4,000 cubic meters of locally sourced mass timber, opened last September in Spokane, Washington. Using mass timber reduced the need for steel and concrete and helped offset approximately 5,000 metric tons of carbon emissions, equivalent to removing 1,100 cars from the road for a year.

The building is the result of a collaboration between prefabricated construction company Katerra, design-build firm McKinstry, energy company Avista, Michael Green Architecture, and Eastern Washington University. Along with the adjacent Scott Morris Center for Energy Innovation, the office building is part of the South Landing Eco-District in Spokane, with Eastern Washington University as its primary tenant.

"This project is especially special for MGA because it brings together a great deal of our thinking and ambition around how to transform the performance and affordability of the built environment," said Michael Green, principal of Michael Green Architecture, in a statement. "We believe this marks the beginning of a transformation in the construction industry, moving from high-carbon materials like concrete and steel toward mass timber as the best option for achieving carbon-neutral buildings."

CoverMyMeds

The first building of healthcare software company CoverMyMeds' new $240 million, 418,000-square-foot office campus is expected to open this spring on a 15-acre site in Columbus, Ohio.

The project, being built by Turner Construction, has largely maintained its schedule during the pandemic, with the owner making clear it would continue moving forward despite the outbreak.

"This is a critical project, and if we have the ability to fulfill our commitments to our growing workforce and community, we will not pause progress," wrote Michael Bukach, senior manager of employee engagement at CoverMyMeds, in a project blog.

The completed facility will also incorporate features reflecting post-pandemic trends of returning to the office. The company said its HVAC system uses air quality sensors and purification technologies—similar to those used on space shuttles and submarines—to significantly reduce contaminants and lower humidity levels, making it harder for pathogens to survive.

The facility can also flexibly adjust on-site occupancy density. For example, monumental staircases will reduce reliance on elevators, while a robust utility grid including power and data ports allows spaces to be reconfigured into multiple layouts.

"We are also installing various touchless systems to reduce shared surfaces and using smooth, hard finishes that are easy to disinfect," said Lars Johansson, director of campus operations at CoverMyMeds.

Lendlease Americas Residential Partnership

Facing declining retail construction spending, Australian construction and development giant Lendlease is advancing a $600 million mixed-use development on a 3.5-acre site in Los Angeles that will include 250,000 square feet of office and retail space.

The Los Angeles project is part of Lendlease Americas Residential Partnership (LARP), formed by Lendlease with Aware Super, a joint venture with a $2.5 billion portfolio of projects in U.S. cities, with Lendlease serving as development, construction, and investment manager. In addition to the new Los Angeles site, LARP recently acquired a site in New York City and has completed projects in Boston and Chicago.

Lendlease's strategy for gateway cities in the U.S. and globally is to leverage their population growth, job opportunities, ability to attract global investment, and resilience through economic and real estate cycles to secure advantageous positions.

Restoration Hardware

Home furnishings brand Restoration Hardware announced a $105 million investment in Aspen, Colorado real estate to create a first-of-its-kind property ecosystem. According to the company, the project will include retail stores, hotel concepts, restaurants, residential development, and affordable housing projects.

The company will open its Guesthouse concept at the Crystal Palace in Aspen, while also launching its first bath and spa. RH is also building its Residences project, including up to five four-bedroom residences within the Boomerang Lodge, as well as a six-bedroom residence on Red Mountain. According to Joseph Feldman, senior managing director at Telsey Advisory Group, Aspen is an ideal location to showcase the brand's products and services to high-end customers.

"We see Aspen as a unique opportunity to elevate the RH brand, showcasing the world of RH to the wealthiest and most discerning customers globally, all within a walkable market," said CEO Gary Friedman in a statement. "Furthermore, we believe the knowledge RH gains from real estate development and ownership will be invaluable as the brand builds its global ecosystem of products, places, services, and spaces."