Published on March 21st, 2016 | by UC&D Magazine1
2016 Economic Outlook
Has it really been eight years since the ‘great recession’?
The fear and loathing many A/E/C firms in Utah experienced following the collapse of the residential housing market – which in turn led to the nation’s worst economic recession in more than a quarter century – seems like a far-distant memory.
Such is the balm that accompanies prosperous economic times, with Utah ranking among the nation’s Top 10 states in several key economic indicators, including economic growth, job growth, low unemployment rates, strong labor pool, cheap energy, and a host of other factors.
“Utah has always been a great place to live; it’s that much better when the economy is performing like it is,” said Jim Wood, Senior Fellow at the Kem C. Gardner Public Policy Institute at the University of Utah. “We have great job growth, among the top 3-4 in the country (3.7% in ’15; projected 3.5% in ‘16). Our fundamentals look good – we don’t have any overbuilt markets, although some are worried about the housing market. The only challenge or concern we have is a national slowdown, but nothing right now in Utah points to an overbuilt or ‘bubble’ in any of the real estate markets.”
Wood, who tracks permit-authorized construction (private companies) in both the residential and non-residential construction markets, said the nonresidential sector had a “stellar year” at just over $2 billion total – the third highest year ever for non-residential building (real terms adjusted for inflation). He did caution that that figure was skewed by a $216 million oil refinery project in Davis County for Holly/Frontier Oil, along with a couple of large solar projects in Beaver and Iron Counties that total approximately $250 million. Still, $1.55 billion is a healthy number, up about 6% from 2014’s $1.45 billion (albeit a ways away from 2007’s peak of $2.4 billion).
Wood said the strongest commercial construction markets include multifamily and transit-oriented development housing, commercial office, industrial, and healthcare.
“We’re at historic levels in apartment construction – it’s what the market wants,” said Wood. “Overall, if you look at total value of (non-residential) construction, it’s the best year we’ve had in eight years. It was indeed a good year.”
“Multi-family is certainly growing – it has been doing better than single family,” added Ken Simonson, Chief Economist for the Associated General Contractors (AGC) of America. “Multi-family has grown 25%. In Utah, a high percentage of the population is Millennials…they are favoring multifamily housing. They have taken a lesson from people who bought homes 12-15 years ago…they are more cautious about buying a home or condo.”
Simonson added that Utah’s population growth – up 1.7% in ’15 (one of only 7 states above 1.5%) – is fueled partly by continued strong internal birth rate numbers along with more people migrating here. He noted that contractors, by and large, are “upbeat about 2016”, with more than one-third (34%) expecting growth this year in 11 of 12 major markets. Among the anticipated market leaders in terms of growth percentage: retail (21%), office (19%), hospital (19%), and multifamily (14%).
“Utah’s construction industry is well positioned for another strong year in 2016,” he added.
More Love from Forbes
Last October, Forbes Magazine christened the Beehive State as the ‘Best State for Business’ for the second straight year and the fifth time since 2010 (Virginia was No. 1 in 2013). It is the 10th time Forbes has compiled such a list, ranking factors in six weighted areas: economic climate, labor supply, growth prospects, regulatory environment, and quality of life.
The overall cost of business – including labor, energy costs, taxes – is the most heavily weighted category, and illustrates the importance of Utah’s uber pro business climate, which is led by the State of Utah’s Governor’s Office of Economic Development (GOED) and the Economic Development Corporation of Utah (EDCU).
According to Forbes, Utah fared well across the board in the metrics that were used for this ranking, placing among the Top 6 states in five of the six broad categories. Utah has a gross state product of $141 billion and has a five-year annual GSP growth of 2.4%. The state benefits greatly from the following:
• Cheap energy costs (23% below national average)
• Rising employment rates (over 2.2%annual growth since 2010)
• A young (read: inexpensive) and highly educated workforce (Utah perennially boasts the highest internal birth rate, along with one of the highest percentages of college graduates per capita)
• A strong, efficient transportation system (modern highways, state of-the-art mass transit systems, convenient airport location – plus it’s currently undergoing a $1.8 billion renovation)
• An influx the past decade of prominent high-tech firms like Adobe, eBay, Oracle, Microsoft, etc.
• Unobtrusive state business regulations (GOED and EDCU have helped lure dozens of businesses to the state in recent years with creative Economic Development Tax Increment Financing (EDTIF) tax credits)
Also according to Forbes (via PricewaterhouseCoopers survey), venture capital firms invested just over $800 million among 43 deals in Utah in 2014 – a total more than triple the average of the previous four years in the state. That $18.6 million per deal average was second only to Florida and the per capita investment was third behind California and Massachusetts.
“One of our primary roles is to recruit businesses from out of state and help businesses expand within our state,” said Val Hale, GOED Executive Director. “We think we’ve done a good job at both. We’ve offered incentives to a lot of companies who have relocated here or chosen to expand local operations. As you drive south on I-15 all along the freeway you see these companies who have chosen to come here. Many have decided to stay here as well. I think we contribute a great deal in that regard.”
Rich Thorn of the Associated General Contractors (AGC) of Utah said members of his association, by and large, have been expressing significant optimism over the current economic climate.
“There are a lot of good things on the horizon,” said Thorn, whose association boasts two offices (Salt Lake and St. George) and an annual membership of approximately 500 firms. “I’ve been in many high-level roundtable meetings already this year with construction presidents and CEO’s and other high-ranking leaders and across the board they say all sectors of Utah’s construction industry look bright. The biggest challenge facing our industry right now is workforce, or lack thereof. Because of the optimism and lack of workers, AGC has programmed more resources (time, staff, money) to addressing this issue.”
Wood added that he envisions 2017 will also be a solid year, even if 24-month forecasts predict a slight decrease in construction activity.
“I would think, barring a national recession, which would be set off by international events in China and the Mideast…barring that, all our forecasts out to 2017 are positive,” said Wood. “We show a little bit of a slowdown by ’17, but still very good growth (3.1% economic growth with 45,000 jobs added). For the next 24 months we should be good.”