3 min read March 2023 — Bryan Northrop, executive vice president at Skanska, spoke with Invest: about the industry in the Boston market. Skanska is dedicated to sustainability and remains focused on encouraging competitors to follow its lead. Projects in the life science, healthcare, higher education, and transportation industries are huge focuses for Skanska this year and next. Moving forward it is important for industry groups to come together with governments to reach a solution that will move the need in the right direction for sustainability.
What role does Skanska USA play in the Boston market?
We have been in Boston since 1946, and we started as Beacon Construction Company before we were acquired by Skanska. We have three business units: civil construction, building construction and commercial development. We are heavily involved in the higher education, life science, healthcare, commercial office and transportation markets.
What are the key challenges when proposing large-scale, mixed-use development in the region?
Our focus is on developing highly sustainable, high-quality buildings that provide great value for our tenants and the community. Since COVID we have seen a few challenges that are unprecedented in recent history. The first is an escalation in the price of many building materials coupled with the general inflation seen in the economy. Some of these price escalations have been compounded by supply chain issues for many building materials, but in particular, mechanical and electrical equipment and components. This extreme escalation and the associated schedule challenges due to supply chain issues have been a challenge for developers and construction managers in the region.
I know from discussions with our development team that beyond construction pricing and schedule, the broader issues caused by work-from-home uncertainty in the office market, interest rates and inflation impacts on the investment sales market, economic uncertainties causing pressure on rents and business decision-making when it comes to leasing, and the large cost increases in development caused by recent policy changes like increased linkage payments, rent control, etc. are all making real estate development of any size difficult right now.
How would you characterize Boston’s readiness for placing sustainability front and center for new developments?
Boston is making good strides toward sustainability and Skanska has been a leader. A lot of companies have been focused on reducing their carbon footprint. We are seeing building owners try to electrify their buildings to avoid using fossil fuels. Skanska is urging the industry to prioritize embodied carbon in addition to the current focus on operational carbon. Skanska was a partner that helped develop a software called EC3 which allows people to calculate embodied carbon in construction materials.
What is the state of Boston’s construction landscape? How have those factors changed the way Skanska handles projects in the area?
Something that is becoming more prevalent on the East Coast is mass timber construction. There are some modifications that need to be made to local building codes to allow for high-rise mass timber construction. Lumber prices have come down from an extremely high price only recently. Compared to traditional materials, mass timber is a far more sustainable building material compared to steel and concrete. After the significant cost escalation of building materials, general inflation, and interest rate increases, we have seen projects in the planning stages struggle to maintain financial viability. We try to predict commodity pricing and where inflation is heading. Schedules are still being impacted because of supply chain issues. While national construction cost escalation has begun to flatten, the Boston Market has not seen the same level of flattening yet as there are still a number of major projects in the planning phase in the market. The subcontractor community still has a fairly decent backlog of work.
What industries will be driving demand in the Boston market in 2023?
The busiest industry this year has been life sciences and we expect that to continue. We have world-class higher education institutions coupled with world-class healthcare institutions. The three-legged stool is healthcare, higher education and life sciences. We saw a shift a few years ago where developers started to shift their focus from commercial office space to life sciences. During the pandemic, we learned we are too dependent on other countries for medical devices and pharmaceuticals. Now, a lot of work in Boston recently is around manufacturing those items here. Life sciences will continue to be a major driver here. In terms of higher education, they saw enrollment numbers decrease around the pandemic and therefore put many larger-scale capital projects on hold. We are beginning to see some of these projects move forward, especially STEM-based projects. If we start to see a recession, major institutions with large endowments may take that opportunity to build more as they have done during past recessions. The transportation industry is starting to make a comeback with money from the government for infrastructure projects. At the airport, they are looking at significant sustainability upgrades. Moving forward there will likely be a focus on affordable residential projects.
Are there any legislation or regulations that are going to impact your industry?
There are a lot of projects in the state right now that are focused on sustainability. Both the Commonwealth and the City of Boston have set carbon reduction requirements and we are seeing building owners beginning to plan modifications to their existing buildings and infrastructure to meet these new requirements. Port facilities are going to be built to help with the offshore wind farms. These large projects are receiving funds from the federal and state level since the wind farm will support renewable energy. It is important for industry groups to come together with governments to reach a solution that will move the needle in the right direction for sustainability.
What is your outlook for Skanska in the Boston market over the next few years?
I believe the Boston market will continue to be strong over the next 12 months. We are seeing more large-scale residential projects happen within communities that didn’t have them before. We are seeing life science clusters and the expansion of medical office buildings moving to communities just outside Boston proper. Life sciences and housing will be big focuses in addition to transportation and infrastructure. The city is still trying to figure out how we deal with resiliency against rising sea levels and other threats. The market will remain strong, and we have a very talented workforce that is attractive to many industries. Boston will continue to be a leader in the U.S. where businesses want to put their roots down. It is such a great place to work and live so I really think Boston will continue to prosper. As a company, we will continue to strive to be a leader in sustainable construction. We are focused on projects that are beneficial to society and that play an important role in the community. Innovation is something we are dedicated to here at Skanska. That goes hand in hand with sustainability because they make us more efficient. This includes innovations in safety and technology. We are making buildings that are safer and easier to operate.
For more information, visit:
