Blast from the past

After someone spilled a glass of water in my living room last night, an old magazine got unearthed like a time capsule from the mounds under my coffee table.  It was “UMUM”  from 2002, a local magazine published by Walton Brown that had a short life.  It was kept under the coffee table because, thinking back, it may have been my first publication as a writer on construction issues.

At the time I was just back from college and full of ideas and ego.  I’m not even quite sure of the circumstances that led to me writing the article and definitely don’t recall why I would be given such a platform at the time.

It was an attempt to predict “The future of construction in Bermuda”.  Unsurprisingly I didn’t see the calamity of the 2008 crash coning but I wasn’t completely inaccurate.  Judge for yourself…

A Look Into the Future of Construction in Bermuda and What’s in Store for Bob the Builder

Sorry to disappoint but I’m not going to peer into a crystal ball and tell you that soon we’ll be using recycled rubber tires to build skyscrapers on Front Street.  Predicting the future isn’t the bizarre exercise it once was.  There’s no need for gypsies or tarot cards, just sound logic and lateral thinking.  You basically need to learn from the past, but try to avoid driving through the rear view mirror. In other words, it’s easy to spot a straight-line trend but much more difficult to predict a future curve.  You also need to know your facts and demographics, and think outside the box.  Despite the simplicity of the formula, rarely has the future been accurately forecasted.  Until now that is!

The Facts

To truly comprehend how Bermuda operates, every one of us needs to understand one indisputable fact. Bermuda is 100% dependant on foreign currency being brought to the island.  It does not matter what your occupation is or how far removed you are from the “big two” of local industry. The Bermudian dollar is not an international currency and without foreign mullah we wouldn’t be able to import Volkswagens, sliding glass doors, orange juice and sweaters.  Currently, we are blessed with two significant sources of foreign money, and I don’t need to tell you what they are.  Or maybe I do, because sometimes we don’t see the bigger picture. If you take a step back, you can see one of those straight-line trends I was talking about.  Our “Original Economy” – tourism, directly or indirectly supported and continues to support everyone from chambermaids, to taxi drivers, waiters and tour operators, vegetable farmers and retailers.  Prior to the arrival of the Ace’s and XL’s, we had some lawyers and accountants but nothing relative to today’s numbers. As we have become a more sophisticated society, the younger generation of Bermudians has not been content with the occupations of their forefathers.  International business keeps the “New Economy” Bermudians, the accountants, and computer cabling technicians, financial analysts and bank clerks, lawyers and actuaries busy.  One thing is certain however: that our society as a whole is equally dependent on each of these “pillars”.  And, as one of the biggest direct beneficiaries of the frequent capital expenditure in both tourism and international business, the construction industry has generally been a happy camper. 

After ten years of being very happy indeed, the construction industry is also fat.  Fat with too many companies and too much work. The only yellow-pages category with more listings than “Construction Companies/Contractors” is “Churches”, which is not surprising.  Lots of companies equates to lots of projects.  With so many projects happening at the same time, builders are paying a huge premium to keep good workers and those costs are passed on directly to the consumer.  Demand is so high for skilled and semi-skilled labor that we have had to import workers to keep up. And imported labor is NOT cheap.  What has caused this?  While a number of factors over several years have contributed, a few stand out. Government expenditure on large capital projects has not subsided since Casemates was renamed Westgate.  International business has literally been bringing money here by the truckload and been using it as aggregate in the concrete they are so desperate to get these office buildings up.  If you think back, Bermuda hasn’t been without a mega-project (+$50 Million) for nearly a decade!

The Future 

What will happen the day we finally get a break (a date which is still off in the distance)?  The fat will be trimmed.  Be prepared all you Bob the Builder’s out there.  When the mega-projects run dry, even if temporarily, the Big builders will be competing with the Not-so-Big builders for the same work. Companies will fall and people will be out of work.  It will be a necessary purge.  Unemployment will grow but costs will come down as builders compete for the leftovers.  Bad but good. 

As the buildings rise on Pitts Bay Road and Berkley Hill, so too do the costs of homebuilding for the average Joe.  To keep builders out of the commercial market, homeowners are paying out of the nose to keep up with their housing requirements.  And it doesn’t matter what type of house you’re building.  As any real estate agent will tell you, the listings that sell the quickest are the cheap ones, in the three to five hundred thousand dollar range (available only to Bermudians). Half a million dollars for a two or three-bedroom condo or house is considered cheap in today’s market!  The Gilbert Lopes’ and Sans Pearman’s out there (‘developers’ in the true sense of the word, who buy the land, design the building, construct it and sell or rent it) have been capitalizing on this trend by scouring the island for every available plot of land on which they can squeeze in as much cookie-cutter condo construction as is geometrically possible. And they can’t build fast enough.  With prices that high you’ll need fifty thousand dollars lying around to secure your “piece of the rock” but for those of us just starting out, even a little starter home seems like a pipe dream.  To make matters worse, space is running out and demand is higher than ever.  So how will this generation of young Bermudians meet their housing needs?

Cue Sir John Swan and his Ocean Winds Apartments.  This will not be his most speculative venture ever (May I take your order?), but risky nonetheless.  Sir John is definitely a visionary and he is no doubt banking on this new wave of city dwellers that everyone is predicting.  After all, a majority of the New Economy Bermudians has more than likely spent some part of their young adulthood in a metropolitan area, probably gaining that B.A. or B.Sc.  With this big investment gamble that Sir John is making, he’s calling on Hamilton to become more vibrant, more alive, so that more people will be attracted to city life.  The new City of Hamilton plan is reportedly just what the doctor ordered.  But one must be cautious.  Just because residential use in your East Hamilton development is now “encouraged” does not mean we should rename it SoHo just yet.  Last time I checked this was still a free-market economy.  Government cannot force developers to build apartment buildings, restaurants, and cafes.  Nor can they change the fact that office space is currently nearly twice as lucrative as residential space from a developer’s perspective. Changes like this have to be market driven.  Right now, the market wants to build 6-storey office blocks in town and two bedroom condos in the “central parishes”.  

But here’s where I stick my neck out slightly and predict another “curve”.   Currently in the planning stages are a number of office developments, which is an indication that rampant large-scale commercial construction still has a few years left in it. While office development will be strong into 2005, sooner or later the international business flood will peter off into a manageable, Flatt’s Inlet-type current.  This, combined with a housing market that is quickly approaching the boiling point, will make high-density residential development appear very lucrative.  This will stimulate entrepreneurs like Sir John to build more residential developments, and those people that can’t afford a ½ acre in Pokiok will have to settle on a 4th floor apartment with a balcony, a roof top swimming pool and an underground car park (Ocean Winds actually doesn’t have individual assessment numbers. In other words: no cars.  I think that’s too big of a leap for most Bermudians to make at this time).  Hopefully, this will have a knock on effect and eventually make opening for business at night in the city more attractive.  This will take some time though.  But in the next ten years, Bob the Big Builder will be busy with high-end office construction, new apartment buildings and eventually new retail and restaurant establishments.  And most likely in that order.

 While Hamilton is poised for transformation, it will not be the only place to see some action.  For about 6 years now, two different governments have been sitting on a gold mine of toxic sludge and sewer waste in the form of Morgan’s Point.  Can they possibly fiddle about ANY longer?  There are rumors that they may decide to lock the gates and keep it as a land bank for future generations.  A noble idea, but something has to be done about the aforementioned waste before Great Sound becomes a mini Chernobyl.  Besides, if they do that, the land will be slowly whittled away as the housing market screams for mercy and we’ll end up with a poorly planned frenzy of big houses, little houses, narrow streets and a lack of public recreational facilities, not un-like most of Bermuda.  Next big prediction?  Government will pull the finger out and award the development of Morgan’s Point to local boys BEAM Ltd. and progress will be made with their ambitious plans for a new golf course, hotel, marina, community recreation and residential development.  I know what you’re all thinking – do we need another golf course?  The answer is yes!  Ask any golfer on the island how hard it is to get a tee time nowadays.  This goes back to the heart of our dependence on foreign dollars.  Sorry go-carters, but a racetrack will not bring in the greenbacks like a championship golf course will.  If we build it, they will come.  And make no mistake we need them to come.  This should get the tourism ball rolling, and also draw some attention to the West End Consortium’s plans for a “Total Island Resort”.  Even though the message went over most of the attendees’ head’s at a recent press conference, cooperation and a single vision is what they are preaching and this will hopefully breathe new life into our bland tourism product.  A healthy tourism industry is one that is upgrading and renovating, so Bob the Not-so-Big Builder, keep one eye on this at all times.  There’s going to be plenty of opportunities for independent developers in BEAM’s scheme and its’ projected to last 10-12 years. 

One of my best friends recently asked me of my choice of professions, “Do you REALLY see a future in construction on this tiny, over-developed island?”  The future needs of a healthy economy will ensure that construction will always be active.  While I was very tempted to try to woo him with the latest catch phrase, Sustainable Development, it is a concept that is hardly relevant to an island that has been over-developed for a while now. The U.N.’s definition of sustainable development (“Development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”) was meant to have global connotations and does not compute in the complex equation that is Bermuda.  And don’t let any politician tell you otherwise.  Sound planning and forward thinking is certainly prudent however, and open spaces should be conserved wherever possible.  But the fact that the Bermudiana Hotel site had been developed years prior did not compromise the ability of future generations to meet their development needs.  In fact, we may be spawning a new phenomenon: Recycle-able Development. 

So, is there a future for construction?  I’m positively bullish on Bermuda and I feel that as long as foreign dollars keep coming here, as long as tourists visit and people think this is a nice place to live, Bob the Builder will survive and prosper.  Buildings will be renovated and property will be redeveloped to meet our future needs.  Construction is the second oldest occupation in history and it won’t die anytime soon. 

By Alex DeCouto 

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About workforcebda

Alex owns and operates Workforce Ltd., a Bermuda-based staffing company for the construction industry.
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3 Responses to Blast from the past

  1. Larry Burchall says:

    Alex,
    As I read that, I recalled reading it before in UMUM. Nice stuff. Prescient.

    New building construction work certainly came to a screeching halt in/about 2010. From then on and for the next five years, big construction work will likely always – mostly – consist of change-of-use work. The sort of work that the Greens created by replacing Tourist Park Bermuda’s Waterloo House with Business Park Bermuda’s whatever they call it.

    With the flood-out of people as ResPop fell from 68,000 to 60,000/61,000; there will be no need for new-building additional residential capacity until ResPop rebounds,. regrows, and surpasses that 68,000 or looks as if it might. Same thing for office space. And for Government space. Change of use, yes. New [additional] builds, no. Not until ResPop starts looking as if it will go past 68,000.

    Tourism? Dead. Build a new Casino? Why? With all the empty and unused capacity, why new build? Anywhere. Especially as at least 40% of any new build is immediately lost to Bermuda’s economy as at least that percentage goes straight overseas for ,materials etc… [You’re the construction expert and you’ll know that better than I] New building now is financially wasteful. Renovation/refurbishing now for change-of-use is likely to see a greater percentage never leaving Bermuda on the first round opt spending on the project. So its nationally stupid to new build a ‘casino’.

    Construction’s five year future? RCR. Renovation. Conversion.. Repair. If this economy has turned around by 2020, new builds concentrating in the City might re-commence. If no turnaround, a slowdown in RCR as well.

    Essentially, no new builds until economic turnaround….

    lb

  2. workforcebda says:

    I agree with everything but the last sentence. Should read “…unless economic turnaround…”.

    That being said, the Greens are spending almost $100M on renovating the HP. I am not prejudicial on the type of build. Work is work.

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