The Future of Planning Construction Projects

After an unprecedented year for the commercial construction industry in Michigan, Builders Exchange of Michigan asked local project owners about the future of planning construction projects.

Contributors

Metro Health | University of Michigan Health (MH)

Brett Butler, Director of Facilities, Construction & Real Estate

Jones Lang LaSalle (JLL)

Scott Rantala, Vice President of Project & Development Services

What updates to current facilities or construction of new facilities were you planning over the next three to five years before the pandemic? How many of these projects were new construction vs. additions and renovations?

GRR: The planned large capital improvement projects include expansion and widening of Concourse A (8 new aircraft gates), a Federal Inspection Station, a Consolidated Rental Car Facility (to enhance the car rental guest experience, improve operations, and increase close in covered parking capacity), a Snow Removal Equipment Storage facility, Operations facility, administration office remodel, fuel farm reconstruction, and baggage claim expansion. About 65% of these are new construction projects and represent a far larger construction value while 35% would be considered additions or renovations.

VAI: We were planning renovations, as well as the buildout of shell space. About 30% of the upcoming projects were new construction, and 70% additions and renovations.

JLL: There were a few projects our team was looking forward to completing this year, including a combination of new construction and renovations.

MH: We have a variety of capital replacement, capital improvement, and strategic capital projects going to ensure our continued ability to live up to our brand promise. Pre-pandemic, fiscal years 2021 (July 1, 2020-June 30, 2021), 2022, and 2023 included capital renovation to refresh the interior condition of existing outpatient clinics, capital renovation to add new services at existing outpatient clinics, as well as the hospital, and capital construction of new outpatient clinics to enable us to reach people in our community in need of improved access to healthcare services. On the basis of a number, the percentage of new construction would likely be less than 10% and renovations would be around 90% of the total number of projects being considered. However, on a cost basis, the percentage of new construction would likely be more than 50-60% of the total investment being considered, with renovation likely around 40-50% of the total investment being considered.

How have these plans changed because of the pandemic?

GRR: The Airport Authority delayed or deferred over $200 million of capital improvement projects. For some time, all construction projects at the airport were suspended. The projects that resumed immediately were those already under construction and required completion to maintain safe travel at the airport and projects that were funded partially or wholly with state or federal grants. The remaining projects, including 2020 and 2021 developments are being evaluated on a case by case basis considering variable forecasts for the return of air travel.

VAI: Projects have been postponed.

JLL: Unfortunately, the pandemic has put our projects on pause, but as production begins to ramp back up, our team is revisiting those projects as they prepare to move forward!

MH: The pandemic has brought many challenges to the provision of healthcare services; these challenges include a dramatic shift in volumes, the type of care being sought, the manner in which care is being sought as impacted by the Governor’s orders as well as the patients changing needs, and certainly not least financial challenges to our industry. The Metro Health | University of Michigan Health team has quickly pivoted not only operations but planning as well to reprioritize the order of projects and consider how the physical environment must adapt to the rapidly changing needs within healthcare. The designs of projects are being reconsidered to enable us to safely deliver to our patients’ critical healthcare needs both in-person as well as remotely, and in combination.

All of these changes will continue to push renovation and new construction design to not only change how space is allocated but also the amount of space required.

Metro Health has year over year been recognized as a national leader in the implementation of technology within healthcare delivery and through the demands of the pandemic has pushed technology in healthcare delivery even further and faster. Our facilities have been designed to reduce the spread of infection and through the demands of the pandemic continue to push infection prevention strategies further. The most significant changes that have been realized are operationally through both our clinical teams (caregivers such as nurses, doctors, and technicians), but also our environmental services and materials management support teams. All of these changes will continue to push renovation and new construction design to not only change how space is allocated but also the amount of space required. This in turn has not only reprioritized projects, but also pushed project schedules out, and caused out reams to cancel some projects as well as institute other projects to follow our strategy.

What toll has the economy and temporary shutdown had on your industry? What effect has or will it have on any growth in facilities expansion?

GRR: COVID-19 impacts were devastating to the aviation industry as a whole. After many years of record-setting growth at the Gerald R. Ford International Airport, passenger traffic was down 96% in April 2020 from April 2019, which had been the busiest April in airport history. Pre-COVID, airport development plans focused on increasing capacity to maintain an excellent guest experience as the frequency and number of direct flights continued to grow. As traffic has slowed, so have airport revenues, as well as facility expansions. Each planned expansion is now being evaluated for necessity based on updated passenger forecasts and availability of funding.

VAI: We completely shut down, except for essential staff. It has definitely slowed our growth.

JLL: Generally speaking, construction and real estate have slowed, but lease renewals are one business area that’s still booming. People feel comfortable, and most importantly safe, in their current office space so we’re noticing a common trend of lease renewals. We’re also seeing more clients invest in customizing their spaces to enhance health and safety for employees.

Looking ahead, we expect to see a considerable increase in portfolio diversification and expansion. To abide by CDC social distancing guidelines, offices are losing nearly 50% of their desks for employees. To overcome this loss in available seating, we expect to see more companies looking to expand their footprint to accommodate proper distancing and/or implement a Work from Home program.

MH: Financial resources, skilled labor challenges, and major shifts in the very fabric of the community have created significant impact and will continue to have an impact for the foreseeable future. Capital investment will continue to be applied strategically and the impacts will significantly change how the physical environment is leveraged to provide healthcare; which in turn will continue to modify our facilities expansion plans.

What changes do you foresee in the relationship between contractors/architects/engineers and yourself, the project owner, that may need to take place in the future?

GRR: Our need for contractors, architects, and engineers will slow in the near term. Air travel will rebound from the pandemic, but the recovery period is unknown at this time. Our need for capacity and capital expansions will return, and as they do so will our interaction with partners who are essential to the continued expansion and success of the airport.

VAI: There will certainly need to be plans in place to deal with how contractors will adhere to the screening of staff, wearing masks, and other procedures.

JLL: I see a relationship between the two strengthening. In fact, there are already signs of the relationship growing. In the industry, we’re noticing more open communication and collaboration between the two sides. Contractors, designers, and architects often reach out to JLL to check in on how Owners/Users of space are evaluating their future real estate needs. We at JLL keep them updated on any current projects we are aware of or what we see coming down the construction pipeline. It’s really a mutually beneficial relationship.

MH: Metro Health | University of Michigan Health expects much of its partners involved in its capital investment initiatives whether they be contractors, architects, engineers, and certainly of itself to ensure that Metro Health | University of Michigan Health is able to deliver excellence to our patients, staff, and community. Even before the pandemic, to be good stewards of our financial and time resources Metro Health expected, and certainly in these times of the pandemic continue to expect high-value, thought-leading, true partners with integrity. This will be more important than ever moving forward.

What have you learned through this crisis that will help you prepare for the future when planning for updates to current facilities and constructing new facilities?

GRR: Flexibility of facilities, including facility planning, maintenance, and development, is very important. We will continue to focus on future considerations and facility flexibility with each planning and design effort.

VAI: It’s too early to say.

JLL: Based on current survey research by JLL, Gensler, Steelcase, and others, the office is not going away and in fact is more important than ever to support social collaboration, learning, and cultural connection. How we use the office will change. One prediction I have that will surely shape the future of commercial real estate is that many companies will look to reimagine their workplaces either in a new location or a re-design of existing space. While hybrid WFH and work-in-office will be with us, the demand for space will likely increase in the long-term. It’s likely that former trends focused on private office space and cubicles will return to the conversation of office design in order to accommodate social distancing and minimize the spread of germs. There are also certain design considerations to keep in mind such as physical barriers, automatic sanitizing stations, and reconceptualized common spaces. These concepts, which previously may have been an afterthought, are now at the forefront of discussions surrounding office design.

MH: Through this crisis, I have found even more value in relationships, in good communication, and in rust. These have been and will continue to be foundational in all future projects.

What is your overall outlook for the future of facilities updates by your company? Your industry?

GRR: Aviation traffic and airport facility needs will return. I expect individual airport needs to vary tremendously as individual communities rebound from the pandemic. The flexibility of our facility updates and expansions will be very important over the next few years. In the short term, facility investments at airports will be less than projected but will return with traffic.

VAI: Our projects will be delayed due to the risks associated with bringing additional people into the building.

JLL: Right now, it seems the conversation surrounding the future of office demand is too simplistic. Just because there’s an increase in remote work does not mean that the demand for office space will simply disappear. There are many factors that will impact the future of office demand such as new legislation, the density of occupancy, innovation needs, company culture, and productivity metrics. The physical office has for years enabled professionals to meet for essential face-to-face activities that just aren’t as easily done online via video calls. Certainly, the look and feel of the traditional office will change in the years ahead, but with a focus on de-densification and well-being, I expect that tomorrow’s offices will play an even bigger role in work culture and society. Not only is the office space for work, but it’s also a space for innovation, culture, and human connection.

There is one thing for sure, innovation is most often found in challenge…

MH: This crisis too shall pass so-to-speak; whether there is a vaccine, cure, or this disease remains with us for the future as a seasonal disease. Our local, state, and National communities will figure out not only how to deal with the current and lingering effects of the crisis; but will also figure out how to prosper, maybe not any different than before. There is one thing for sure, innovation is most often found in challenge, and I don’t think anyone can deny 2020 has provided challenge so I am excited to see the innovation that comes as a result!