The Pandemic And Soaring Lumber Costs Have Not Deterred Developers From Considering Mass Timber
The use of mass timber in U.S. commercial real estate has been growing rapidly over the past six years, spurred by official recognition of its safety and strength. Corporate leaders have also come under increasing pressure to make environmentally friendly business choices, leading to an uptick in new mass timber developments, which have a lower impact on the environment than using concrete or steel.
That momentum took a hit during the coronavirus pandemic as projects were postponed or delayed. But industry experts say enthusiasm for mass timber has endured: More than 1,100 projects are in the pipeline, and recent building code changes mean that specialty wood products can be used to build high-rise developments for the first time.
“If mass timber gets to a market share of 10%, it's a home run. Those are big numbers when you start to get up into that kind of figure. And I could see that happening by 2035,” Forest Economic Advisors partner Art Schmon said.
Mass timber is an umbrella term for a variety of engineered wood products used in construction, where wood pieces are connected to build a denser material. Several products fall in this category, including glue-laminated timber (glulam), nail-laminated timber and cross-laminated timber.
In particular, CLT is being increasingly used in commercial developments as a primary load-bearing system, or in conjunction with other mass timber products like glulam. It includes multiple layers of lumber oriented at right angles to one another and then glued to form structural panels. The process creates a composite material with the strength, stability and rigidity to compete with concrete and steel.
The material has another core benefit: It’s environmentally friendly. Wood is the only major building material that grows naturally and is renewable, and it releases far less carbon dioxide into the environment than other materials. In addition, the manufacturing process requires less energy and produces fewer greenhouse emissions than for steel or concrete, researchers have found.
CLT has been around for about three decades, but it has only recently started to receive certification and codification that makes developers comfortable using it. CLT was introduced into the 2015 International Building Code, as well as the National Design Specification for Wood Construction. Since then, the U.S. went from having almost no commercial mass timber buildings to just over 500, according to WoodWorks Vice President of Operations Bill Parsons.
“It's quite an acceleration from zero. It's not in the scheme of thousands of commercial buildings built in the U.S., [as] it's still very new and emerging technology, but we've certainly seen this accelerate,” Parsons said.
Structurlam, one of the biggest manufacturers of CLT in North America, began producing the material for commercial buildings in 2011. But there was a large increase in demand when CLT was formally included in the IBC, Structurlam CEO Hardy Wentzel said.
“Certainly, when it got codified in both Canada and the U.S., you saw a real uptake in usage, because now it's in the building code. People know it’s safe, people know it's gone through all the testing. It's part of the ANSI [American National Standards Institute] standards, which is important,” Wentzel said.
The initial code allowed CLT to be used in buildings up to five stories high, but the new 2021 International Building Code includes provisions that allow CLT to be used in commercial and residential buildings up to 18 stories high, widening the possibility of its application.
CLT’s rising popularity with architects and developers has mirrored the growing weight of environmental, social and governance criteria in corporate America. Growing concerns about climate change have contributed to the exponential growth of ESG investing, placing pressure on corporate leaders to make business decisions that also benefit the environment. That has come with a sharpening focus on how much carbon buildings release in their daily operations, as well as their embodied carbon — that is, how much carbon was released into the environment during the construction of the building, including the creation of the materials.
“Most of the major corporations around the world have been paying a lot of attention to operational carbon in past years. But in recent years … embodied carbon has become a much bigger deal,” Schmon said.
Gensler Design Resilience co-leader Rives Taylor said the investment community has been the driving force behind some of the mass timber buildings appearing in the U.S. today across several asset classes, including office, retail and multifamily.
“There's an acceptance by both those who are paying for it [and] those who are investing in it, that [it’s] a reasonable investment,” Taylor said. “If there is an increase in cost, there's a return on investment that makes sense.”
CLT adoption was sharply on the rise before the coronavirus pandemic. Consumption of CLT in North America for building applications was about 180,000 cubic meters, or around 86 million board feet, in 2019 — an increase of 110% from 2018, according to Schmon.
“We weren't expecting that to continue necessarily at that rate. But it's very clear that the consumption of CLT, if you get rid of the pandemic … the consumption of CLT into building applications was growing exponentially,” Schmon said.
The pandemic caused disruptions to the construction and lumber sectors, including slowing or delaying commercial real estate projects. However, those projects were more likely to be postponed than canceled, Schmon said. Early estimates from his firm suggest North American CLT consumption in 2020 was down by 15% from the prior year.
Lumber prices rose in 2020 and reached historic highs in 2021 as supply chain issues clashed with soaring demand for single-family home construction and renovation projects. Prices peaked at more than $1,700 per thousand board feet in May, a massive spike from the average of less than $400 from 2015 to 2019. Because lumber is a feedstock for CLT, that material also became more expensive to obtain.
CLT manufacturer Wentzel noted that lumber accounts for about 50% of his costs. But CLT supply did not disappear during the pandemic, and most projects are years in the making, meaning that temporary price fluctuations likely did not affect the majority of CLT projects being planned, Wentzel said.
“During Covid, if there was a building that was slated to go ahead, say this week, it's in production — we would have secured the lumber probably the minute we were given the purchase order that we were going to supply that product,” Wentzel said.
Columbia Property Trust’s renovation of 80M Street, a mass timber project in Washington, D.C., uses CLT and glulam. The comparable strength, light weight, speed of construction and reduced labor were all reasons why the firm opted to build an additional three stories on the building using mass timber, according to Columbia Property Trust Senior Vice President Patrick Keeley.
Because the firm ordered its materials early, the pandemic and subsequent high lumber prices have not affected the timeline of the development.
“We were fortunate to have locked in pricing and procurement plans well in advance, so 80M’s development was not impacted by any pandemic-related setbacks,” Keeley said.
Another example of a CLT project that escaped the high pricing of the last few months is Rice University’s Hanszen College, which is replacing one of its residential wings. Rice University Assistant Director for Project Management & Engineering Anzilla Gilmore is overseeing the project, and as the owner’s representative, is responsible for managing the budget, schedule and consultants.
Gilmore told Bisnow that skyrocketing lumber prices had forced a small CLT student-led project on campus to be placed on hold, but the much larger Hanszen College project had ordered CLT from Structurlam right before the spike.
“Had we not placed our order early, before lumber costs increased, we may have had to make some hard decisions about whether we could afford to move forward with a CLT structure,” Gilmore said.
Structurlam has kept particularly busy over the past year and a half. While other sectors slowed at the onset of the pandemic in March 2020, the firm was just starting to work on the order for Google’s first mass timber building in Silicon Valley, a five-story, 182.5K SF office building.
“We not only had a good running start in 2020 with the Google project, but we actually sold slightly more commercial mass timber products in 2020 than we did in 2019. And 2019 was a record,” Wentzel said.
The firm has also been busy with Walmart’s 350-acre new corporate headquarters and campus in Bentonville, Arkansas. The campus will be the largest mass timber development in the world, with about 2.4M SF of office space.
Because the scale of the project is so large, Structurlam has opted to build its first U.S. mass timber plant in Conway, Arkansas, which is slated to open in mid-August and will immediately begin producing wood products for the Walmart campus. The plant is the first facility with CLT manufacturing capabilities to open in the southern U.S., which is expected to drive adoption of CLT in the region.
North America has significantly more CLT supply than demand. While total consumption in 2019 was 180,000 cubic meters, Schmon estimates that figure is only about 40% of full CLT press capacity available. In addition, more companies have announced plans to open plants in the next couple of years, including in the South.
Even Katerra’s bankruptcy and closure of its Spokane Valley, Washington, CLT plant haven’t seriously affected supply. That plant is capable of producing 185,000 cubic meters annually, more than all of North American consumption in 2019. Discussions are underway as to which firm may opt to purchase the facility, according to Schmon.
Columbia Property Trust sourced its CLT from Katerra for the 80M Street project. However, that product was delivered in March, prior to the bankruptcy, and the project has continued on schedule, Keeley noted.
It may seem counterintuitive to build so much capacity ahead of demand, but Schmon said it comes down to reducing risk for architects and developers, who want to be able to source CLT and other new products easily if a plant suffers an unexpected closure.
“Typically, with new products, you've got to have the capacity there first, and you've got to have multiple manufacturers,” Schmon said. “Once you have two or three producers in place and lots of capacity, architects start to feel a lot more comfortable.”
When it comes online next month, Structurlam’s new Conway plant will also begin supplying Rice University with materials for its Hanszen College project. The replacement wing is the university’s first mass timber project.
Gilmore said that among CLT’s purported benefits, the ability to be assembled quietly and neatly on-site is a serious advantage since Rice will be building in close quarters to active classrooms and living facilities.
CLT buildings are commonly compared to erector sets, where the pieces of wood for the entire building are pre-cut, allowing for very fast, precise assembly on-site. As a result, the projects need to have a very high level of coordination between architects, engineers, contractors and consultants prior to groundbreaking. It’s more intense upfront, but it could result in greater cost savings over the source of the entire construction cycle.
“If we can get this project completed a month earlier because we have a CLT structure that goes up faster than a concrete structure, the project could save a month in contractor general conditions costs and contractor fees. So, the material costs for CLT may be higher, but the project saves money in time and labor,” Gilmore said.
Gilmore is also optimistic that when the project begins to go up in September, the number of discrepancies found on-site will be greatly reduced from usual.
“Because our consultants have worked with our contractor and their subcontractors to coordinate the details early, the project saves money by decreasing the number of change orders,” Gilmore added.
Schmon said that the construction industry has started to move toward automation and modular construction off-site, largely because there simply isn’t enough labor to keep up with demand. He pointed to research from McKinsey, which found that productivity in the construction sector between 1947 and 2010 barely changed.
“We're under-building as a result of that. And that can only go on for so long. And so builders and developers are being forced to start doing more off-site in automated environments, in which you don't need as much labor to do the same thing,” Schmon said.
As of March 2021, 514 mass timber projects have either been built or have broken ground in the U.S., according to WoodWorks. The future pipeline appears robust, with another 1,114 in the design stage.
Parsons said that the mix of projects entering the design pipeline has shifted slightly to include more multifamily, which has become a favored asset class of developers on account of its recession-proof reputation. But while office demand tapered off during the peak of the pandemic, Parsons and Wentzel noted that office demand has begun to appear again.
“Since probably the last six months, the first part of 2021, we've really seen office come back, where people are really trying to differentiate what their office experience is going to be,” Parsons said.
Notably, the demand for mass timber buildings using CLT in the eastern half of the U.S. has increased significantly over time, and it now accounts for nearly 60% of all mass timber projects in design, according to an analysis of WoodWorks data by Forest Economic Advisors.
As lumber prices continue to come down from historic highs, Schmon said that CLT is expected to ramp back up to pre-pandemic levels by 2023.
“When the nonresidential market begins to pull out of its doldrums in 2023 and beyond, I think we're going see that actual consumption of CLT continue to resume its exponential growth,” Schmon said.
Mass timber and CLT are not expected to replace concrete and steel in the construction world. But Schmon is optimistic that its share of the market could reach 10% by 2035, as the combination of cost savings and environmental positives will continue to drive developers and firms to adopt the technology.
“Do I think that CLT will be as big as steel or concrete anytime soon? No, I don't. But do I think it will become a significant factor in North American construction, between now and 2035? Over the next 15 years? Yes, I do,” Schmon said.