Published on March 21st, 2017 | by UC&D Magazine0
Coming off a highly productive year, Utah’s A/E/C industry is confident that business will remain busy and profitable throughout 2017 and beyond.
By all accounts, 2017 is expected to be another robust and very busy year for firms working in Utah’s A/E/C industry. After a mostly-productive and profitable 2016, industry executives interviewed by Utah Construction & Design predicted that this year could be the best since the recession struck in late ’07-early ’08.
“If you’re a betting person, we think it will be another strong year for Utah,” said Jim Wood, Ivory-Boyer Senior Fellow
for the Kem C. Gardner Policy Institute at the David Eccles School of Business at the University of Utah. “We enter 2017 with
strong fundamentals in place in Utah. We have a diverse economy, mortgage rates are favorable, and we have strong in-migration – people are coming and they want to be here.
“It’s impressive what is happening in Utah,” Wood continued. “We’ve been ‘discovered’. Certainly there are concerns – our air quality needs attention, we have issues with education. So it’s not all great, but the vast amount of data we have suggests we have it really good right now.”
According to Wood, non-residential construction spending this year is expected to top the $3 billion mark, which would be the best year in the history of the Beehive State. Wood said those numbers are somewhat skewed by three mammoth, once-in-a-lifetime projects – the $2.9 billion Salt Lake Int’l Airport expansion (originally estimated at $1.8 billion), the $650 million Utah State Prison, and a $400 million expansion/renovation of the University of Utah School of Medicine and two other adjacent buildings on the U’s medical campus.
Those three projects account for a large chunk of the $3 billion-plus number, but by and large the overall health of the construction and design industry appears solid for the next 12-18 months.
Natalie Gochnour, Chief Economist for the Salt Lake Chamber of Commerce, said myriad positive factors indicate that Utah’s construction market is well positioned for this year. In a speech to the Associated General Contractors of Utah during the AGC’s 2017 annual convention in January, Gochnour mentioned Utah’s fastest-growing population in the nation (3% vs. 1.5% nationally), an unemployment rate at 3% (national average is 4.5%), and the fact that 40,000 to 50,000 jobs have been added for six consecutive years.
“We have a lot of great economic indicators – we’re in year seven of an economic expansion,” she said. “A downturn is coming, we don’t know when.Most recessions happen for reasons we have no control over.” She listed possible concerns as an uncertainty of what the new presidential regime intends to do with infrastructure spending, an antiglobalist view and talk that could start a trade war, immigration policies, and a less accommodating monetary policy. She expects virtually every market sector to grow in ’17 except for energy and mining.
Roger Christensen, Senior VP of
Marketing, Communication and Business Development for the Bank of Utah also expressed optimism.
“Our economic base the past 3-4 years has been strong and we expect that to remain strong in 2017, particularly in the commercial real estate market,” he said. “We’ve seen a lot of new construction types in all areas throughout the Wasatch Front. We’re optimistic about the future. From what the Fed says, we expect (interest) rates to rise three or four times. We don’t want the market to overheat and we don’t think it’s overheated right now. We don’t anticipate the bump and decline that we had nine years ago. We’re on a seven-year recovery…the market is strong but not exuberant.”
Local association leaders are also optimistic about this year and their members’ ability to be productive and profitable.
“Almost everyone I’ve talked to is anticipating 2017 to be a good year, a year that has promise for additional work coming – there are many companies that have a tremendous amount of backlog already on the books,” said Rich Thorn, President/CEO of the AGC of Utah. “In some cases firms have 2017 completely booked and they’re looking into 2018. We’re seeing optimism through the third quarter of 2018 in some markets – that’s unprecedented for firms to look two years out, and it’s across the board with civil, highway, underground, general building, suppliers – pretty much all disciplines. The private sector is outpacing the public market. If you drive through 7200 South, the Bangerter Interchange in Draper, the Silicon Slopes in Lehi you’ll see evidence of a healthy construction market.”
“2017 and 2018 expectations for Utah’s industry are moderate with projections hovering around 2% growth rate per year,” said Chris DeHerrera, President/CEO of the Associated Builders and Contractors (ABC), Utah chapter. “Factors that may inhibit growth are uncertainty in national/ global politics, global economic slowdown, monetary policy and labor shortage. At the state level, tax policy and infrastructure spending may assist in growth. One thing to watch for in 2018 is the possibility of inflation.”
“The Utah economy remains healthy and is one of the top performing in the country,” added Brent Overson, Executive Director of the Utah Masonry Council. “With strong residential and commercial activity during the past year, UMC projects continued quality growth in 2017.”
UDOT’s Budget Improving; Department Continues to Innovate
The Utah Department of
Transportation (UDOT) is geared up for a busy construction season in ’17. UDOT Deputy Director Shane Marshall said the Department is “a little bit up over 2016” with $780 million worth of projects going out to bid this year. He also said 2018 should be similar in terms of expected program dollars spent.
“The outlook is really, really good,” said Marshall. This comes on the heels of two of UDOT’s lowest years in recent history in 2014-15. Marshall said the 2015 gas tax contributed $17 million in ’16 and will likely account for a similar number in ’17, much
of which helps the Department address secondary road issues. Much of UDOT’s focus in the past 15 years has been on interstates and other major arterials – roads that carry 90% of traffic volume. It has led to less-than-ideal conditions on secondary and rural roads, something monies from the gas tax will help with.
“It’s a big deal,” Marshall said of the gas tax. “The economy can certainly change, but right now (our program) looks very stable. We’re planning improvements the next four years on low volume roads and bridges and hold that condition into the future. We’re spending $40 million on local rural, low volume roads this year.”
Major UDOT projects either underway or planned for this year include: $168 million Mountain View Corridor (5400 South to 4100 South); $201 million Bangerter Highway Interchanges in the Salt Lake Valley at 5400 South, 7000 South, 9000 South and 11400 South; $105 million I-215; 300 East to SR-201; $28 million I-15 – Brigham Road to Dixie Drive in St. George; $22 million I-80 Climbing Lane from Jeremy Ranch to Parley’s Summit; $35 million U.S. 40 Myton Bench to Roosevelt; $19 million Redwood Road, I-215 Interchange in Davis County.
Marshall said Utah continues to be a leader amongst the nation’s DOT’s in terms of innovation and working safely and efficiently around the traveling public with its widely-praised Accelerated Bridge Construction program.
“Our bridges are the envy of the country right now,” said Marshall. “I was in Pittsburgh (Pennsylvania) a few months ago and you don’t want to walk under their bridges – they’re in rough shape and they know it. Our program is sustainable.”
Regarding future ABC projects, Marshall said plans are in the works for replacing the 10600 South bridge deck that will close it for 16 days – a schedule that is flat-out ridiculous. It goes to bid in April.
“We’re still evaluating and pushing ABC all the time,” he said. “It’s become an expectation.”
DFCM Work Looks Promising
DFCM Work Looks Promising Jim Russell, Assistant Director for the State of Utah’s Division of Facilities Construction and Management, said major projects like the Utah State Prison and the work at the U’s Medical Campus have pushed DFCM’s workload to nearly the $3 billion mark, including projects currently under construction, in closeout, or slated to begin this year.
“That’s the highest ever for us,” said Russell. “We’re expecting a very busy year.” DFCM has 16 ‘priority’ projects it has submitted for funding help from Utah’s Legislature, which will conclude its 2017 session March 9. Major higher education projects top the request list, including $50 million for the U’s MED Complex, $32.2 million for the William Spry Building Replacement for the Utah Department of Agriculture and Food, $25 million for a Human Performance Center at Dixie State University, $29.9 million for Weber State’s Social Science Building Replacement, $10.5 million for the Springville School for the Utah School of the Deaf and Blind, $22 million for Utah State’s Biological and Natural Resources Building Renovation, and $69 million for a new Business Building at Utah Valley University. The Division’s 5-year plan will likely fund 3-5 projects per year from the list of 16.
Utah Firms Expecting ’17 to Rival ’16
After experiencing a healthy construction market in ’16, many A/E/C firms hit the ground running in ’17, with solid backlogs and optimistic expectations that revenues will continue to climb.
“We all seem optimistic about 2017 for continued growth,” said Alan Rindlisbacher, Corporate Marketing Director for Sandy based Layton Construction. “I did my straw poll with our vice presidents who are in the thick of things are received responses like ‘encouraged’, ‘optimistic’, ‘cautiously optimistic’. Personally, I like the word ‘moderated’. Despite all of the good signs, are there things that will hold us back, moderate things just a bit to help us catch our breath after the past couple of years of banner growth? Regarding Utah, we feel very optimistic that we’re in good hands… with a budget that doesn’t seem to be stressed.”
“Our ‘16 was good – revenues were up slightly but that was by design,” said Slade Opheikens, President/CEO of Ogden-based
R&O Construction. “We made a strategic decision two years ago to focus on client relationships and our bottom line, not our top line. We tightened up our go/no go process to make sure the projects we pursue are a good fit for us. What was good about ‘16 is our revenues are up 5% and our bottom line is better. We didn’t have crisis projects.
That whole ‘bigger is better’ mentality doesn’t always equate. If you take on projects with less profit, you have more risk. We’ve had years where our revenues were up considerably, but the profit wasn’t up. Overall, 2017 could be as good or better than last year.”
“The construction industry is continuing to be very robust with opportunities in many different sectors and many different types of work,” said Jeremy Blanck, Project Executive with Salt Lake-based Okland Construction. “We are very pleased about the amount of work from 2015 to 2016 and we anticipate it will continue in 2017. We’re seeing growth in institutional work, office buildings, and medical.”
“Overall Revenue for Big-D increased nearly 25% from 2015 to 2016 and we do expect a slightly better year in 2017 than
2016, although we still certainly need and are aggressively pursuing projects that fit our company and talent,” said Cory
Moore, Senior Vice President of Business Development. “Our concerns include a combination of talent shortages within A/E firms and frequently owner-driven, unrealistic design schedules, which result in undue strain on our design partners. The typical consequences of which includedelayed project schedules, an increase in project changes and ultimately increased project costs.”
“The number of jobs we’re tracking is up quite a bit – we’re seeing good opportunities in ’17, it’s just a matter of finding good people and having subcontractors that can handle the workload,” said Todd Hughes, President of Hughes General Contractors of North Salt Lake. “We’ve naturally grown over the years a few percentage points each year. Our private sector has really come up in the past couple of years – we’re doing more private work than we’ve done in the past. The K-12 market has been steady.”
“2016 was a year of solid growth and I expect 2017 to be another year of expansion in the Utah economy, driving growth in residential, commercial, institutional and infrastructure construction,” said Scott Parson, President/CEO of Staker Parson Companies. “Skilled labor recruitment is a significant challenge. We are working to improve and formalize our on-the-job training and mentoring programs. I am encouraged by the prospect of positive change at the federal level. I’m not only encouraged by (President Trump’s) focus on rebuilding America’s infrastructure, but I’m also optimistic that some of the crushing regulations that are strangling our economy will be relaxed or repealed. This will inspire increased confidence to invest in America’s businesses.”
Many prominent subcontractor firms said they had very good years in ’16 and expect more of the same this year, despite struggling to find new labor pools and meet stringent construction schedules.
“2016 was a great year for Cache Valley Electric – revenue was up over 2015. It’s hard to gauge 2017 because we work in so many different markets…some market segments are extremely busy and some markets are a little slower than I expected,” said Nate Wickizer, Chief Operating Officer for the Logan-headquartered subcontractor. “The heavy/industrial market is still very busy – a lot of that work for us is outside Utah. There are still a lot of opportunities in the traditional commercial world in Utah, although we’re not seeing it as busy in Utah as in some other places. Overall the forecast for CVE is good – we’re optimistic for 2017 and beyond.”
“2017 is looking really robust and ’18 should also be really healthy,” said Troy Gregory, President of Hunt Electric of Salt Lake. “Past that there are some question marks but I think there will be a boost in infrastructure, maybe more toward the end of the year and into ’18. We’ve had six consecutive years of record growth and we currently have more backlog than we’ve ever had. Our goal is to keep our growth at 12-15%. We’ve going to control our growth so we can still perform at a high level.” “I expect 2017 to be better than 2016, especially in the growth and development of our employees,” said Tom Jackson,President and Architectural Division Manager for Steel Encounters, Inc. of Salt Lake. “Our revenue expectation for ’17 is to increase 5-10%.”
Design firms also weighed in on their expectations for 2017.
“2016 was a little bigger than ’15 – our revenues grew from $22 million to $28 million. Even though it was bigger, it felt about the same,” said Roger Jackson, President of FFKR Architects of Salt Lake. “I asked all of my associates and everyone was feeling positive, feeling pretty good. We have more on our books this year in February than we have in any other February before. Our books for this year are looking really positive today, but it’s only February. If we don’t get anymore work in 8 months we’re closing shop. But everybody experiences that. Overall, we’re feeling positive.”
“For us in 2016, the latter half of the year seemed to slow down, but 2017 looks more positive,” said Ralph Stanislaw, President of Archiplex Group of Salt Lake. We’ve had a number of inquiries about our services and have a number of fee proposals out right now. 2017 looks better than last year.”
“In general, our revenue was up 20% per employee – this was the result of better jobs in lieu of more jobs,” said David Dunn, Principal/CEO of Salt Lake-based Dunn Associates. “A busy developer market resulted in shorter design time and pressure on construction dollars. Professional design fees did not proportionally increase as our costs did to provide design services. Speed of design created our margin. There is still a tendency in this marketplace for professional fees to remain very competitive (low) and price is valued more than quality. The structural engineering industry also is reeling from a smaller pool of capable engineers. Salaries have not kept pace with what they should be.”
“Both 2015 and 1016 were record years in terms of revenue and the quantity and quality of the projects we’ve been working
on. The success of 2015-16 far surpassed what we did pre-recession,” said Chris Hofheins, President of BHB Structural Engineers. “I’ve been to a few economic forecast seminars in Utah and all are predicting a cooling trend, but we’re starting off 2017 busier than ever and projecting a positive outcome of 10% growth. So we’re positive about 2017.”