REAL ESTATE TRANSACTION SPIKE, HOME RENOVATIONS AND NEWBUILDS DRIVE DEMAND
by Jonathan Kent
Construction is a cyclical industry. When the economy is strong, demand tends to rise as investors gain confidence in the future to put their money into long-term assets. The opposite is often true when the economy is weak.
In the Bermudian context, the reality is more nuanced, as the two years since Covid-19 arrived on these shores have illustrated. While many segments of the domestic economy have shrunken dramatically, construction has been resilient. In fact, many in the sector are thriving, two years after the first lockdown brought work to a complete halt and cast a cloud of uncertainty over the future.
Alex DeCouto, president of contractor Greymane, said the surprising development during the pandemic has been renewed interest in real estate investment, with large increases in transactions in 2020 and 2021. “What has followed, that I can see from the data and anecdotal evidence, has been a related boom in residential construction,” Mr DeCouto said. “Every architect, builder and specialty contractor I speak with, who focuses on residential work, has indicated that they are extremely busy and have large forward order books.” He said the nature of the real estate buyers meant that investment in construction had followed purchases, since the major spike in demand has been for properties in the $1 million-plus category.
“Those buyers are frequently buying and then renovating, with obvious upside for the industry,” he added. “I also think that the recent introduction to the market of premium building lots at Riddell’s Bay, and a few at Tucker’s Point, has resulted in a bit of a surge in luxury home construction.” Simon Tully, president of the Construction Association of Bermuda, was also upbeat. “Residential projects are booming, from ground-up newbuilds to renovations, to the boutique phases of Azura,” he said. The pandemic has been a driver of demand for construction services in several ways, Mr Tully added. “Homeowners and renters now see working from home as a viable alternative, and as they spend more time at home and less time travelling, they have one, increased awareness of works to be done or upgrades and two, more funds to do so, as they spend less on travel and entertainment.” On the impact of the increase in property transactions, Mr Tully said: “New homeowners are putting their own touches to newly purchased properties. Some of this can also be attributed to new holders of PRCs [permanent resident’s certificates], who have been waiting a long time to own ‘a piece of the rock’.”
Tika Gilbert launched her business, Tika Gilbert Architects, in 2020. She conceded that some may have considered her unwise to go out on her own in the height of a pandemic, but the architect has found a healthy mix of work – residential, commercial and government.
The way the pandemic had changed people’s lives was apparent in what customers wanted, she said. “With one newbuild I’m working on, they said they needed an office for both husband and wife and a study space for the kids. We were not seeing that before.”
As one of the largest importers of materials into Bermuda, the construction industry is vulnerable to the supply-chain issues that have been disrupting global trade and also to inflation. These issues are having a “massive impact” on the industry, according to Bryan Adams, director of ABM Ltd and vice-president of CAOB.
“Supply-chain delays are pushing material and equipment deliveries out by as much as a year,” Mr Adams said. “Frequent price increases for construction materials are also making it very difficult to prepare cost estimates.”
Ms Gilbert concurred. “Kitchen cabinets that used to take two months to come in are taking four months now. The manufacturers say the reason is supply of materials.”
The inflation surge exacerbates the challenges, Ms Gilbert added. “If you receive a tender and sit on it for three months, the price is going to change – I’ve seen it first-hand. You have to act quickly.”
Mr DeCouto said he had seen vendor quotes to produce goods in six weeks taking twice that time, or more. “It’s extremely difficult to manage our schedules when you cannot rely on timely delivery of material,” he said. “It impacts the credibility we have with clients when we fail to achieve deadlines.”
While the inflation surge was more manageable, in that suppliers generally gave notice of cost increases, it was a concern to clients who had the extra costs passed onto them, he said, adding that there had been “huge increases” in the cost of metal, lumber and aluminium.
The construction industry is seeing healthy volume despite the challenges, Mr DeCouto added, citing building materials sales in the first half of 2021 that were up by 15 per cent over the same period in pre-pandemic 2019. “When local companies are busy, they buy local materials, they hire more locals for sustainable positions and reinvest profits, not just wages, in the local economy. So, we may not be back to ‘pre-pandemic’ levels of volume but the industry might be better off for the moment.”
