President Donald Trump recently authorized levies of 25 percent on imported steel and 10 percent on aluminum to take effect March 23, 2018. Although the presidential proclamation is an attempt to rectify the United States’ trade deficit, it could have adverse effects on the commercial real estate industry. Real Estate Roundtable President and CEO Jeffrey DeBoer stated, “For every job in the steel production industry, there are more than 50 jobs in the U.S. construction industry (140,000 versus 7 [million]-10 million). New tariffs on construction materials like steel could have the unfortunate, unintended side effect of raising construction costs and reducing jobs in real estate development.” Steel and aluminum are some of the most commonly used materials in the construction of commercial buildings, especially high-rises and multifamily buildings.
Some industry experts believe that builders will turn to alternative load-bearing materials such as Cross-Laminated Timber (CLT), which is less expensive to create, a lower carbon footprint than steel, and can meet demand levels. CLT is a type of mass timber that was first developed in the 1990s in Germany and Austria. It is primarily mass timber plates made from smaller framing lumber laminated crosswise on its wide side. Due to a limited number of manufacturers, mass timber was slightly more expensive than traditional stick built and steel construction, but the new tariffs may change this. Moreover, it is not just foreign steel that will be taxed; the recent tariff on foreign-grown softwoods may also decrease mass timber’s competitors while increasing its appeal to builders.
Mass timber has been slowly entering mainstream construction (Taller Wood Buildings Coming Soon, Development Magazine, spring 2017) over the past decade. Europe was quick to embrace mass timber, but building codes were the most significant hurdle to its acceptance in the U.S. Concerns over flammability and sturdiness prompted extensive testing and in 2015, International Building Code (IBC) formally included mass timber in building codes. However, some U.S. insurance companies and lenders remain skeptical of mass timber’s durability.
CLT and mass timber proponents believe industry barriers are eroding and claim the materials’ benefits are manifold: they are lighter than and do not require the drying times of concrete, both are carbon negative and, with proper reforestation, both are made from renewable resources. Several low-rise mass timber buildings exist in the U.S., including the award-winning, seven-story T3 office building in Minneapolis and the University of Massachusetts Amherst’s Design Building. The first U.S. mass timber high-rise, a 12-story, mixed-use building known as Framework, is under construction in Portland, Oregon. Architects are now planning super-high-rise “plyscrapers” around the world: a 34-story residential building in Stockholm set to be completed in 2023, London’s 80-story Oakwood Timber Tower, and 70-story tower in Japan.
Mass timber’s momentum in combination with the recent trade tariffs may be a boost for the industry in the long term. U.S. suppliers are betting on increasing industry acceptance as turnkey modular construction company Katerra has plans to build a 250,000 square foot mass timber factory in Spokane, Washington, and LignaCLT Maine, LLC will open a production facility on the site of a former paper mill in Millinocket, Maine.
As mass timber technologies are tested and evolve, U.S. regulators, lenders and builders will continue to assess its advantages and disadvantages. Yet, economic restrictions may catalyze the use of alternative materials in the building industry much like the advent of nonconventional fuels after the U.S. energy crisis. Andrew Waugh, a London-based architect, sees mass timber as the future telling The Economist, “We should be looking at concrete and steel like we look at petrol and diesel.”
NAIOP Director of Research Jennifer LeFurgy, Ph.D. manages the NAIOP Research Foundation’s Research Committee and day-to-day operations of the Foundation’s research projects.