A roundtable discussion of construction executives revealed labor shortages, the rising costs for materials, and a dearth of qualified subcontractors to be issues that may hamper the industry's growth.
Cicero’s Development Corp., a general contractor specializing in commercial property renovations, hosted the roundtable at The Palmer House in Chicago on April 19, 2018. It included executives and owners of construction companies from Florida, Texas, Illinois, Minnesota and Pennsylvania.
Sam Cicero, Jr., president of Cicero's, commented on the discussions: "What was immediately evident is that, even after three years of strong growth, the national construction market remains robust. As for the Chicago area, we have an influx of renovation customers who are looking to keep up with newly constructed, more modern facilities and to modernize their properties to protect them from being outdated. Some simply want to make their properties more valuable for resale, but others are seeking to attract newer, younger tenants or to enhance the productivity of their employees. There doesn’t appear to be one section or sector in Chicago that’s benefiting more than the other in this market– they are all doing well."
Randy Reiley, Vice President of Operations for Keller-Martin in San Antonio, Texas agreed: "Although we concentrate in San Antonio we are aware that construction is very strong in Texas and the Southwest in general. San Antonio is a good example. It has a very busy economy with plenty of work to bid. And while it is a very fast growing community rich in opportunities, there is plenty of competition. As a result, our margins remain tight."
The roundtable confirmed a recent survey by the Associated General Contractors of America that revealed nearly 80 percent of construction businesses are having a hard time finding qualified skilled labor, often leading to delays in completing projects.
Dave Zartman, owner of Zartman Construction in Northumberland, PA said: "On the office or administrative side, we’re having difficulty finding qualified project managers and assistant project managers. However, we put on ten general laborers this spring without much trouble, which was very surprising."
Ed Rabel, founder of Rush Construction in Titusville, FL, said his business was also experiencing labor shortages. "We have a shortage of manpower and talent, not only at the 'boots on the ground' level but at the management level. The challenge we have is to be staffed appropriately to handle present customer demand without getting clogged up with having too many people for that possible hiccup in the future."
Kelly TerWisscha, owner of TerWisscha Construction in Willmar, MN, is seeing shortages in both labor and subcontractors to hire: "With the overall construction economy going full throttle it introduces new challenges. For instance, quality subcontractors are difficult to find who aren't swamped. Booming demand has brought in some fly-by-night companies calling themselves subcontractors who simply do not have the know-how to get the job done right. The last thing we need is the headache of having to re-do bad work."
Inflation can have a dramatic impact on a construction budget. Overall material costs are forecasted to increase 2-3% in 2018, and that’s after a 3% increase in 2017. Ready-mix concrete, cement, aggregates and lumber are all expected to rise upwards of five percent. Roundtable members weighed in on the subject.
Kelly TerWisscha related his concerns: "We are experiencing rising inflation in construction materials and wages. Potentially there could be additional inflation in construction materials once the new tariff rule takes effect. Prices and availability of materials have already been affected. Availability is becoming a problem; for instance in the steel industry, companies are buying up the inventory which makes it harder to purchase at a reasonable price."
RECESSION ON HORIZON?
Moving forward, roundtable participants shared their opinions on a possible recession in the near-future.
Keith Nelson, President of TerWisscha Construction warned, "A financial correction is part of the natural business cycle. It could come as soon as 2019. Obviously, people will stop spending money. Although concerning, it’s not something that keeps me up at night."
Dave Zartman of Zartman Construction also fears recession but took a more practical view of it: "I agree with Keith. One of our biggest concerns is work drying up. However, as contractors, that fear is in our blood. We are always concerned with a time when opportunities stop coming in, good times or bad."
Preparing for the inevitability of lowered construction demand is part of good management, explained Al Forbes, Executive Vice Presiden of Rush Construction. "No matter how secure the future, we are always thinking ahead, whether it is diversifying into new markets or being open for changes in technology. We’re not in business just to be in business. As businessmen you have to look at the target and make changes accordingly based on the economy and the flow of money."
For more information about your next office renovation, contact Cicero’s Development Corp. at www.cicerosdev.com.