The Post Hurricane Construction Market in BVI
Bringing in 2020, several buildings around and near the main round-a-bout in Road Town were finalizing major renovations. Some building owners added floors, replaced roofs and windows, changed wall cladding finishes and colors. Others were still trying to finish what was started prior to Hurricane Irma, which was over two years ago. Up until recently, I considered this area of Tortola, ground zero for construction projects.
To sufficiently give an account of the current status of the BVI construction market, it must begin at the pre-2017 hurricane season and extend 26 months past it. As architects, we have a good sense of where the construction market is by the number of proposals being asked of us and what is actively under construction. At the time, the active construction projects were a major resort renovation and the continuation of the North Sound of Virgin Gorda and private island developments. RFP’s being tendered were for midrise office buildings on Wickhams Cay. The bulk of BVI construction is traditionally single-family homes, vacation villas and docks which at that time, where not being built. The market was considered slow and stagnant, at best.
Fast forward to November 2019 and for most of us in the design and construction industry, it’s safe to say that we have been on what feels like a rollercoaster. The months between October 2017 thru March of 2019 were chaotic and this was widely accepted as a BVI construction market boom. In my opinion, the “boom” tapered off earlier this year and company staff levels reflect that but there are several opportunities on the horizon and the phase we are entering is one of sustained reconstruction, driven by the resorts and the Government of The Virgin Islands (GOVI).
Every category of built structures experienced either destruction or some level of damage from the hurricanes of September 2017. Reports stating that 80% of all homes were damaged ranging between $2.6 billion to $3 billion in damages. The Territory has made great strides in the last 26 months. From a simple replacement of metal roof cladding to full-scale repairs from catastrophic structural failures, the BVI construction market was wild and mostly unchecked. Where tourism numbers understandably fell, the construction market picked up the slack. However, this was not immediate. Several islands in the Caribbean also fell victim to either or both Hurricanes Irma and Maria. South Florida and parts of Texas were also impacted. That leads to delays from U.S.-based suppliers of essential materials, such as doors, windows, and metal roofing.
These are the same U.S. suppliers that most islands in the Caribbean, including the BVI, looked to for materials; however, they were serving their US-based clients first. Additional challenges that slowed down both recovery and reconstruction were:
1. Slow and Disputed Insurance Payouts;
2. Storage Deficiencies Due to Destroyed Warehouse at the Main Port;
4. Material Shortages;
5. Damaged Electrical, Cellular, and Telecommunication Lines;
6. Labour Pool Impacted By Evacuations; and
7. Increased Demand for Fuel.
The GOVI made a few decisions to alleviate some of the issues listed above, which had a significant impact on the pace of the recovery, including expedited approval times from the Town and Country Planning and Public Works Building Authority Departments, the waiving of import duty taxes, and an increase in construction workers driven by a relaxed labour policy. These policy amendments encouraged foreign relief workers arriving in the Territory on short term work permits that could easily be renewed, and better still applied for once on island. This policy was a major driver for skilled construction labour to take up employment with contractors. An estimate of a 140% increase in construction-related work permits issued in 2018 reflected the labour needs at that time.
Another major influence on the pace of construction was that insurance companies required their customers who were filing claims to acquire multiple quotes for the repair and replacement of the hurricane-damaged areas of their home or commercial property. This direct interaction with property owners led to many contractors who provided the insurance repair estimates being employed to do the repair work once the owner received their insurance settlement.
Before the storm, the average contractor got by with a staff of 1 to 5 steady tradespersons. The general practice was that if a contractor needed a specific tradesperson, such as a tiler for a particular project, the contractor would enter into a freelance agreement with the tiler to lay the tiles for that project. This sharing of tradespeople meant most contractors did not have to regularly hire a tradesperson as a permanent member of staff. This practice still exists today.
After the storm, most construction companies had no choice but to increase their staff, and in some instances by 500%. The large amount of work also presented an opportunity for many contractors to change how they operated. Some of the more established firms with higher than average staff hired marketing professionals, quantity surveyors, project managers, and procurement and logistics experts. The larger companies also hired human resource managers to assist with the work permit process for the new employees. Individually skilled sub-contractors, like audio-video installers, marine-based contractors, electricians, plumbers, and roofers also benefitted from the post-hurricane reconstruction flurry and they too had to increase staff to accommodate the demand.
Earlier I compared the market to a rollercoaster. At present, the rollercoaster has slowed down and companies that increased staff levels are now reducing them as the demand has fallen off. Damage assessments, insurance claims, and roof replacements are mostly complete so the next phase will be driven by the resorts and the GOVI where it is expected that construction company staff levels will increase again.
The resorts and GOVI building sectors experienced massive amounts of damage and to date, most properties have yet to be fully repaired. In some instances, some buildings in both sectors are still in their post-disaster state. The majority of the resorts were decades old and the damage and destruction presented an opportunity for the owners to either dust off the plans that they always wanted to implement or hire architects to completely start over. Owners are looking at more resilient and cost-effective ways of delivering 4 and 5-star products and will all require experienced construction companies to deliver them. The reality is that most of the resort work will be tendered and won by the larger firms but there will be opportunities for sub-contractors to enter into sub-agreements with the parties.
As Q1 of 2020 begins, the GOVI of the day is expected to greenlight many projects in their portfolio of damaged building assets. The multitude of GOVI projects that range from schools to infrastructural repairs and upgrades are all expected to be tendered by both architects, specialist consultants, and contractors. Other GOVI related projects such as the airport expansion and the development of Prospect Reef are also on the horizon. As I write this article, design firms are about to respond to multiple requests for proposals from statutory bodies and the GOVI.
No discussion about the current state of construction in the BVI is complete without mentioning the role of the Recovery and Development Agency (the “RDA”). According to their website, “The Virgin Islands Recovery and Development Agency (RDA) was established in 2018 by the Government of the Virgin Islands as a transparent and accountable specialist project implementation agency to respond to the unique challenges faced by the Territory following the extreme weather events of 2017.” To date, nineteen tenders have been issued with multiple successfully being awarded to local contractors. The RDA mandate includes capacity building, which means part of their role is to educate and train. Several seminars and workshops on procurement, risk management, life safety, just to name a few, are all geared to strengthen the knowledge base of local contractors. For many new and established construction companies, the RDA presents a viable opportunity to work on several Caribbean Development Bank (CDB) and GOVI funded projects.
Local and foreign developers still see opportunities two years post-disaster and are looking to capitalize on the increased labour market and general positive economic outlook. Cities and developers understand that effectively using land to create multi-use destinations brings deep value to communities. There is significant diversification in the BVI development and construction market and, if you are looking for a contractor, there is no shortage of experienced and savvy ones for all project types and sizes.
With the increase of labour in the territory, one would have expected the average contractors’ daily rates to drop. That did happen for a brief spell, but once newly arriving workers got wind of what the traditional going rates are, then they went back up. What is hard to say is how much of the $764 million dollars related to property specific insurance payouts went back into reconstruction work, but it’s safe to say it was the primary driver of the construction market for all of 2018 and up to the end of Q1 of 2019.
One unforeseen benefit coming out of this disaster cycle is a general increase in construction knowledge and know-how. Prior to the storm, what may have seemed like a difficult concept to grasp was how a roof is assembled, for example is now a widely held skill that many homeowners can quickly recite the assembly and material sequencing. Homeowners are also more intelligent as it relates to impact resistance requirements for door and window glazing and minimizing potential risks from overhangs, cantilevers and site excavations.
An area of construction that is severely lacking in the BVI is good quality interior finishes. The island has many quality tradespeople who are good at the basics and core components of construction but very few who are conscientious with the finished “move-in-ready” product. This presents a huge opportunity for small contractors to carve out a niche for themselves by offering high-quality interior finish work with a turnkey service which, at a minimum, includes carpentry, tiling, sheet-rock installation, carpet laying, electrical, plumbing, and air conditioning.
Finally, the economic substance legislation is another opportunity that some in the BVI sees as a possible benefit to the overall economy and to us in the design and construction industry. Partly because many companies will need office space and housing for this new labour pool. When talking about economic substance most are taking a wait and see approach.
The BVI will continue to ride the wave of a post-disaster construction tide but moving ahead with a steady and deliberate pace.