The Association of General Contractors’ Chief Economist, Ken Simonson, recently spoke to economists in Denver. He noted construction will continue improving in:
- Power & Energy
- Manufacturing facilities
- Warehouse & Distribution
The Budget Control Act (the default provision resulting from the “Super” Committiee’s inaction) requires across the board cuts starting January 2013. That could impact construction on military and federal facilities throughout Colorado as Federal and defense accounts must cut back by 5% and 8% respectively. Even with improvements in State and City revenues public sector expenditures on construction will drop after 2012.
Forecasts for other sectors:
- Single-Family – nationally flat. We think locally there will be improvement – in the 10% to 20% range.
- Highway – down in 2012-13
- Hospitals and higher education – prospects for raising money has improved nationally. We think pressures for cost control are especially acute in these sectors limiting new facilities while making existing facilities more functional and energy efficient. Denver and Colorado Springs already saw a hospital boom in the last decade and is likely to be in the capacity ramp-up stage.
- Pre K through 12 – lower through 1013
- Retail – Big boxes are shifting strategies for market share – moving into smaller facilities closer to the consumer. This will impact tenant improvements mainly. In Colorado Springs Walmart and convenience store chains going through the planning process for a number of neighborhood stores.
- Office will continue to be flat. We think there will be some early investing in renovations to test the payback on reducing utility costs. Medical and dental offices are beginning to percolate, but nothing substantial.
- Lodging – mainly flat with a small bump. More on the renovation side.
Overall, the Great Recession resulted in a 36% decline in construction employment in Colorado (29% nationally). Workers are leaving the industry which could have longer-term implications on industry wages, although in the short-term employment costs are increasing slower in construction than in any industry. Other construction costs are mainly flat to dropping a bit. This includes copper, steel, concrete and asphalt, as well as most other building materials. With China’s economy cooling down, material costs should stay steady for now. Of course transportation costs will impact delivery costs.