The Pandemic's Impact On Minnesota's Construction Market

MINNEAPOLIS (WCCO) -- Minnesota's construction blueprint consists of delays and cancellations as the pandemic has changed plans.

WCCO dug into the numbers that point to a sharp turn -- one that some predict could be permanent.

Snow and cold seem to always slow construction come February in Minnesota. Only this time, a spring thaw may not warm the industry the way it once did.

As president of the Minnesota Construction Association, Dave Lyste has a pulse on the future, as the past is filled with postponements and cancellations over COVID-19.

"It has been a very trying year," Lyste said.

But as construction workers went back, job sites have changed.

"The residential market's really been, really been strong," Lyste said.

He says housing is one of the few areas still turning a profit right now, as the state deals with an affordable housing shortage and a backlog of projects people may have been putting off at home.

The Federal Reserve Bank of Minneapolis captured concerns in a recent survey, with expected sales or business activity in the industrial sector "significantly lower" than the fall. In contrast, half of the company's surveyed in residential construction reported some growth.

John Jepsen believes some of the changes will be permanent. He's had a front row seat to it all from his forklift. Eighty-five percent of his shoring company's business pre-pandemic was spent on commercial sites, holding up and lifting structures for major repairs.

"The commercial market has really just slowed way down," Jepsen said. "I think a lot of these corporations are going to look at, 'What do I need to be paying rent on these high-buck, high-rent office spaces?' When they can be keeping people at home and not paying that," he said.

Jepsen believes public safety is also part of the conversation. His Minneapolis business was surrounded by the unrest from last May. Steve Cramer is president and CEO of the Minneapolis Downtown Council.

"I've seen the good, the bad and the ugly," Cramer said.

At this time last year, more than 200,000 workers traveled to work downtown every day. Downtown office towers are now 15% full.

"Even in this kind of condition, we still have a bustling downtown from an investment standpoint. But clearly we have seen this dramatic decrease in the number of people who are coming to work every day caused by the pandemic," Cramer said. "I think safety concerns in Minneapolis are something we also have to acknowledge, is something that we need to get on top of and build confidence about to see those workers coming back."

He points to major projects on the north end of Nicollet Mall, including Minnesota's only five-star hotel as signs of promise, along with COVID-19 vaccines on the market that he believes will bring workers back the latter half the year.

"That's our hope. We're optimistic about this year, but also realistic that we've got some continued challenges to face and really deal with," Cramer said.

There is also optimism over the $2 billion bonding bill passed in October at the Minnesota Capitol, giving a boost to construction workers building roads, bridges and any other public projects.

"Without that, there have been some very nervous contractors that we've talked to that are part of the MCA," Lyste said.

Ultimately, Lyste believes it could be years before the effect of 2020 is fully realized on Minnesota's construction market. Moving forward on a new floor plan is the only option.

The Minneapolis Downtown Council also pointed to a softening housing market. Cramer says vacancy rates have more than doubled from 3% to 7%, and rents have dropped by at least 10% on average in downtown Minneapolis.

The price of materials is also driving up the cost of construction, with most materials at least up by 20%. Industry experts believe manufacturing will catch up this year, so that change will be temporary.