Building momentum? Not just yet – Commercial construction lags recovery

Phil Castle, The Business Times

Christine Sartoris

Workers from LE Dangler Masonry erect a wall at the Sunflower Farmers Market grocery store under construction in Grand Junction. While a number of indicators reflect generally improving economic conditions, it still could be awhile before a hard-hit commercial construction industry in the region substantially recovers. (Business Times photo by Phil Castle)

Christine Sartoris sees signs of a slowly recovering economy in generally improving conditions in Colorado, rising sales tax collections in the Grand Valley and even growing interest in membership in the regional trade group she oversees.

Signs of recovery are far less evident, however, for the commercial construction industry in the area, says Sartoris, president and chief executive officer of the Western Colorado Chapter of Associated Builders and Contractors. “The commercial construction industry hasn’t felt it yet. We’re going to lag behind and we’re slow to catch up.”

It’s an assessment others in the industry share.

“It’s still pretty flat,” says Clark Atkinson, executive vice president of Shaw Construction.

Dan Roberts, chief financial officer of Mays Concrete, puts it this way: “We’re still in the hunker down and make it work mode.”

With few large construction projects planned and margins on existing projects razor thin, commercial construction contractors face challenging times. While there’s been a modest increase in demand for construction workers, the unemployment rate in the sector remains as much as double that of overall joblessness in Mesa County. Energy development bolsters construction, but exploration and production activity in the region has flagged with low natural gas prices and a shift in resources to oil-rich formations in other areas of the state and country.

Some construction firms have adapted by expanding their areas of operations or scope of services. But it could another 18 to 24 months before the sector substantially recovers in Western Colorado.

Still, hopes persist the sector ultimately will recover. In fact, Atkinson believes there could be a shortage of skilled construction workers in the region once growth resumes.

For now, though, difficult conditions persist, says Sartoris. “It’s still pretty rough out there.”

Stiff competition for contracts has kept bids low and margins at or near the break-even point. “It’s difficult to make a buck right now,” says Roberts.

Atkinson says prices for some construction work have declined to levels of 15 years ago —  great for customers, but less so for contractors.

Dale Beede, broker and partner at Coldwell Commercial Prime Properties in Grand Junction, says most of the major commercial construction projects under way in the Grand Valley have been completed or soon will be. An American Furniture Warehouse opened late last year. A new press box and other renovations at Suplizio Field soon will be completed, Beede says.

Work continues on a municipal public safety building as well as a Sunflower Farmers Market grocery store. An existing building at Mesa Mall also will be renovated for a new Buffalo Wild Wings location scheduled to soon open, Beede says.

Colorado Mesa University long has been an exception to the rule of declining construction activity in contracting for hundreds of millions of dollars worth of work at its expanding campus in Grand Junction. Atkinson calls the university a “shining star.” A new residence hall is scheduled to open this fall and offer 180 additional beds to students. CMU trustees have approved the construction of yet another residence hall to keep pace with growing demand for student housing.

No other major construction projects are in the pipeline, though, Beede says.

While commercial vacancy rates remain low, many existing buildings are underutilized, Beede says. Moreover, many businesses are more interested in survival than expansion. Those businesses that are faring better are shedding debt to gain more competitive positions, he adds.

 Roberts says he doesn’t foresee any substantial increase in commercial construction activity in Grand Valley this year or next.

With a lack of activity locally, some companies are looking elsewhere for work.

Roberts says Mays Construction has expanded its operation to a four-state area that includes not only Colorado, but also Arizona, Montana and New Mexico.

Atkinson says construction activity actually has been brisk in the Denver metropolitan area. “Denver is just going gangbusters.” Demand also has rebounded for high-end luxury homes in mountain resorts, he says. In addition to Grand Junction, Shaw Construction operates offices in Denver and Jackson Hole, Wyo.

Since the commercial construction sector typically lags behind economic recovery, Sartoris says it could be another 18 to 24 months before the industry realizes substantial improvement — or the increased payrolls that go with it.

Suzie Miller, business services manager at the Mesa County Workforce Center in Grand Junction, says there’s been a modest increase in demand for workers in the construction sector over the last two months. Still, most of the openings have been for low-paying positions rather than skilled positions that offer higher wages.

Job orders for more than 630 openings in the construction sector were posted at the center between March 1, 2011 and March 1, 2012, Miller says. But at the same time, more than 3,600 applicants registered at the center are interested in those jobs — a labor pool only slightly less deep than that for applicants interested in office and administrative positions.

Sartoris estimates the unemployment rate in the construction sector at about double overall joblessness in Mesa County, which spiked at 9.6 percent in January, the latest month for which numbers are available.

Energy exploration and development has direct and indirect effects on commercial construction and in the past has bolstered construction. While energy activity has rebounded from a severe downturn, it’s flagged as natural gas prices have remained low and  high oil prices have drawn attention to oil-rich formations.

Those in the construction industry say a broader economic recovery with sustained job growth ultimately is needed to promote commercial construction in Western Colorado. Easier access to financing to fund construction also would help, as would government policies that create a more stable business environment.

Sartoris, for one, remains optimistic a recovery is coming. “It’s just going to be a matter of time.”