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The commercial construction sector, which in recent years got by on big publics works projects, such as the prison hospital, is looking forward to a steadier stream of work in 2014.
San Joaquin County Supervisor Ken Vogel told business leaders in January that foot traffic is increasing at the county planning office, which means more businesses have plans to expand in 2014.
“The commercial construction market is poised to be as good in 2014 as it was in 2013,” said Jim Hanley, of Hanley Construction Inc. in Stockton. In business since 1954 the company’s focus is on commercial construction.
“We have more projects scheduled now and capital is more available which helps the commercial market.”
In California building permits issued for non-residential projects in November 2013 had a construction value of more than $2.82 billion, an increase of 74 percent from October and a 126 percent increase over November 2012, according to the California Building Industry Association’s November construction review.
Jim Hoagland, owner and president of Roland Construction Inc. in Stockton, wasn’t surprised by the permit increase.
“A major plus for us last year was the agriculture sector, as we had projects for packing sheds, cold storage facilities, drying sheds and other ag-oriented work.”
Another positive sign of increased productivity in commercial construction was an increase in small buildings work.
“Over the last two or three months, projects in small buildings has really picked up whereas that construction segment was nearly non-existent for the last five years,” Hoagland said.
Recent growth in design billings points to healthy gains in future construction levels in 2014, according to Kermit Baker, chief economist for the American Institute of Architects.
“The AIA expects to see construction spending gains exceeding seven percent with the commercial/industrial sector continuing to lead the upturn,” Baker said.
Baker’s forecast of 2014 improvement extends to the hotel sector, which he believes will see 15 percent spending increase. He also thinks the office and retail sectors will see strong growth with more modest spending growth in the manufacturing sector. Health care and education facilities will finally shake off their flat performance, Baker believes.
Public safety, religious, and amusement/ recreation sectors should see reasonably healthy improvements.
Adding to the positive forecasts for 2014, a report in Construction Executives noted the “astonishing stability of non-residential construction materials prices … [which] rose only 0.6 percent between September 2012 and 2013.”
This was good, if not earth-shattering news to John Beckman, CEO of the Building Industry Association of the Greater Valley.
“Demand didn’t impede supply during this time and even now demand is clearly second to supply and the ability of manufacturers to meet supply needs,” Beckman said.
According to Hanley, materials costs “are always hit or miss and dependent on the market with each area more or less influencing the cost of materials.”
That supply and dcould change if Beckman’s analysis comes to pass. “There is more construction activity, more plans, new sub divisions and infrastructure work being planned. The economic downturn is easing.”
“But the banks haven’t loosened up their loan programs very much, they’re still very cautions,” he said. “The industry has a way to go before banks will ease up on their loan policies.”
As construction increases, the economy improves, and more jobs appear, labor might be a problem, said Beckman.
“From 2008 through 2012 laborers left the construction industry and found something else to do so it may be very challenging to find enough skilled labor if some who left don’t return.”
One challenge – comprised of many parts – will remain no matter what economic improvements occur in construction: regulations.
“We see a big challenge in 2014: the new California building code which has provisions that will drive up construction costs,” Hoagland said.
“California’s regulators have, in their divine wisdom, created even more regulations which makes doing business more difficult,” Beckman said. “Energy standards, building codes, air tight home mandates, and every new home built in California must have a sprinkler system, which means the larger the house the higher the cost.”
Another challenge for contractors to overcome is high fees charged by many Central Valley cities. The rates can be as high as 25 percent of the selling price; however, Beckman said Manteca, Lathrop, and Lodi have moderated their fees to 10 percent to 12 percent. On a good note, he said “San Joaquin County has kept its fees in check for the most part.”
“We’ve had more inquiries from Tracy, Manteca, and Lathrop for work than from anywhere else,” Hoaghland said, adding, “I don’t think the industry will ever return to that previous level of madness before the recession. We’re seeing a gradual improvement.”