Theatre Design & Technology - Summer 2020 - 13

Alleviating Fears

Inflation-Adjusted Annual Growth in Building Costs in the U.S. During
Three Recessions
Annualized rates of inflation-adjusted building cost growth are shown for the quarter immediately preceding
recessions (in blue) and during recessions (in yellow) for the three economic recessions of the last 30 years. For
the purposes of this chart, recessions are defined as the period between the peak and trough of real building
costs.
25.0%

21.9%
20.0%

15.0%

10.0%

5.0%
2.2%

1.1%

0.0%

-5.0%

-10.0%

-3.7%

-4.9%

June 90 - April 91

May 00 - May 01

Growth prior to peak (1qtr; annualized)

Nov 08 - Nov 09

Peak-to-trough (annualized)

Source: Engineering News Record and Charcoalblue research

only a few days between venue closures
and full stay-at-home orders being issued.
After that point, any activity other than
essential maintenance and security became difficult or simply unlawful.
In the near term, lower energy prices
will provide some relief for building operations budgets. This should not be taken
as an excuse to withdraw any commitments to sustainability. Moreover, these
price adjustments are likely to be only
temporary. Falling prices are perhaps
more compelling for arts organizations
looking to refresh or renovate their existing performance buildings or to build
new ones.
Economic recessions tend to reduce
inflation-adjusted construction costs.
Those with "shovel-ready" projects may
see very good value in the market in the
near term. Previous recessions have
seen construction prices lag inflation by
as much as 3-5 percent. This is in sharp
contrast to construction inflation just before recessions, when construction costs
rose at least 1-2 percent faster than inflation (and by more than 20 percent leading up to the Global Financial Crisis).
This analysis likely understates
the cost savings possible when beginning a building project in the wake of a

downturn. The available building cost
indices capture only the cost of the basic
inputs-labor and raw materials. They
do not capture the contractor's margin,
which can constitute as much as 5 percent of an overall construction budget.
In Charcoalblue's experience, during a
recession, actual total bid costs will flex
much more than the underlying price of
materials and labor, as builders are willing to accept reductions on their margins
to cover fixed costs.
In some cases, the softened market
has been enough to bring projects whose
costs had escalated beyond available
capital back into the realm of feasibility.
However, only organizations that were advanced enough in the design process have
been able to take advantage of the dip.
Indeed, there may be advantages in
adjusting methods of procuring construction contracts in a cooler construction
market. While the early engagement of
contractors/builders has become more
common, this may become even more
important in the context of a downturn.
Contractors will be looking to back-fill
cash flow and attempting to lock-in projects earlier. At the same time, they will
have time to engage design value-added
services.

Polls of theatregoers about their intentions to return to performances show
abundant caution. In mid-April, Shugoll
Research found that 63 percent of audiences said that they will wait more than
a month after public assembly is deemed
safe to attend the theatre.
Communicating with established
audiences and potential ticket-buyers
about the precautions that individual
venues are taking will become industrystandard. We've already seen such messages crowding our inboxes from grocery
stores, rental car companies, and restaurants. While venues are still closed, it
may yet be deemed too early to convincingly send such messages. However, given the substantial progress to be made
in public opinion, it is difficult to imagine
that there such a thing as "too soon."
Economics
columnist
Steven
Pearlstein wrote in a late-May issue of
The Washington Post, "Going forward,
any nursing home or cruise ship operator who even thinks about putting profits
over customer health and safety won't
make it to the next quarter." The same
will apply to performance venues.
The Shugoll poll suggests that outward signs of protecting the public-hand
sanitizer and masks being available,
disinfecting surfaces, and modifications
to queuing and food and beverage service-will encourage attendance. How
then are we to communicate the safety
of theatre-going to those who haven't yet
bought tickets? Operating under reduced
capacity, socially distanced standards is
the best way to demonstrate confidence.
Socially distanced performance has
been dismissed by many organizations as
uneconomical or as simply not artistically
appropriate. While staggered seating and
mask wearing may make us feel uncomfortable, it is not only in the auditorium
where audiences will be adapting to new
practices. Churches, cinemas, schools,
and doctors will all be changing practices. What will be required to open venues
will not feel extreme; it will be expected
and demanded. As we've seen, reduced
demand for tickets is certainly expected,
and that will happen whenever it is that
we start to welcome audiences back. So
why not start sooner rather than later?
While the economics of one-third or halffull houses aren't sustainable, bringing
people back is going to be necessary to

SUMMER 2020 | THEATRE DESIGN & TECHNOLOGY

| 13

Theatre Design & Technology - Summer 2020

Table of Contents for the Digital Edition of Theatre Design & Technology - Summer 2020