In the February 2022 issue of AWCI’s Construction Dimensions we looked at markets lost and found as a result of the many changes surrounding the COVID-19 pandemic. Now, with the pandemic behind us, we take stock of the situation, see how the dust has settled and how the future looks.
We asked contractor members of the Association of the Wall and Ceiling Industry to take a fresh look and let us know the overall changes in the construction market in their area, the new opportunities that have arisen and how they are taking advantage of these.
First, the good news.
Changes for the Better
As president of branch operations for Marek Brothers, John Hinson has a good view of the construction industry throughout Texas and other parts of the Southeast, including Atlanta, Nashville and other urban centers. “The old-fashioned malls are being dismantled or repurposed,” he says. “A healthcare company might come in and turn the mall into a pediatric center with facilities for medical treatment, areas for kids and so on. What we don’t see is office buildings going up these days.”
He has noticed an increase in urban revitalization of areas where retail shops, dining areas, bars, outdoor venues, entertainment and residential spaces are being combined to bring new life to downtown areas in, for example, Austin, San Antonio, Dallas, Fort Worth, Atlanta and Nashville. “I’m definitely seeing quite a lot of multifamily products,” he says. “Also a steady stream of large healthcare construction. These are big, multibillion dollar healthcare facilities in a number of markets.”
He has also noticed an unusual increase of high-end sports stadiums being built. Another increase is in high-tech data centers and other technology facilities: Apple, Google, Tesla and the like.
“There’s more work than we expected there would be, coming out of COVID,” he concludes. “We were concerned about how the market would be with the changing office-building environment, but there is still a lot of work out there.”
Jerry Reicks, president of JARCO Builders Ltd. in Iowa, has a very positive report from his part of the country. “The soaring price increases that marked the COVID era have stabilized and came down a bit,” he says. “Construction has never slowed and, for whatever reason, has picked up. Labor cost is the biggest change. Our employees are starting at significantly more money, and raises have been and will be increasing to add to and maintain our needs.” But the biggest change for JARCO is their market share, which has risen from 35-40% of the commercial market pre-COVID, up to their current 75% market share. “For the first time ever we are not in our line of credit and have money invested in 5% CDs,” he says. “We are raising labor rates in our estimates and passing that on to employees.”
“The construction market in Washington state has evolved significantly over the last few years due to the impacts of COVID-19,” says James Kahler, president and CEO of Northwest Partitions in Washington. “While it presented challenges, it also created opportunities for technology adoption, skill development, diversification, safety measures and networking. Northwest Partitions has been proactive in adapting to these changes to remain competitive and serve the evolving needs of our clients with the utmost level of quality, professionalism and timeliness.” Their program of adopting relevant helpful technology, training personnel, stringent safety measures, improved networking and diversification has included adding new scopes of work, such as acoustical ceilings, to provide a wider offering.
“In our markets, we are feeling the results of the COVID slowdown with large projects that are just now coming on line,” says Stan Marek, CEO of Marek Brothers headquartered in Texas. “Many are institutional and will be very large interior jobs. Some are requiring ‘legal’ W-2 workers with OSHA certifications and vaccine records. The larger jobs, private and federal, will require a traditional labor model, rather than a use of the pervasive labor brokers or 1099er’s currently providing much of the labor. There will be major labor challenges in all our Southeast markets. We are dedicating major resources to recruit young men and women from our high schools and community colleges.”
A long-term lack of vocational training in schools is finally being recognized, but it is a case of too little too late. Marek has long promoted a guest worker program called “ID and Tax” to provide legal status to the many currently undocumented workers so that they can participate legally in the construction industry, which they need and which needs them.
From Florida, Ron Karp, principal of Advanced Masonry Systems and Advanced Drywall Systems, reports, “Demand remains strong. Qualified manpower is still a challenge. Material prices have leveled off while labor prices are up. We can be very selective in what projects we currently pursue. We don’t need to pursue 10 projects with the hopes of landing two. We are able to negotiate more projects as opposed to ‘hard bid.’”
On the Flipside …
Victor Roach, president of Western Partitions, Inc. in Oregon, says, “The Northwest has slowed quite a bit compared to other parts of the country. There seems to be a hangover from the rioting, terrible urban camping and drug problems.” Government is slow to fix the homelessness and drug problems, resulting in people fleeing to other parts of the country or to the suburbs. “As some of our older projects finish up,” he says, “we are looking at lay-offs or transferring people to other regions. All this makes for gloomy news from the Northwest.” The only positive light he sees is that “slowdowns always give rise to tightening the belt and looking for ways to become more efficient.”
Stan Kasper, president of the Rockwell Group in Illinois and Wisconsin says, “The most critical change has been material price hikes, although they have slowed down a bit and are more manageable. Manpower is a struggle, but that’s more driven by retirement and few younger people coming into the trade. We are recruiting some new tradespeople, but it is a constant battle. Even with a nation-wide shortage of available manpower, the prices we’ve seen on the projects have stayed extremely competitive, so our opportunities are self-driven. We are constantly looking for new materials that create labor savings as well as technology-driven tools and equipment.”
Glenn McBride, Fort Worth division manager for Marek, in his 42nd year with the company, says, “We were not able to capture normal revenue amounts from 2020 through 2022. Developers and financial institutions appeared to be cautious. We did not hit a normal stride until mid-2023. However, we have finally been successful in securing work through mid-2024.”
He explains that new competition has increased the number of bids per job. “All we can do is continue to perform with Marek standards of 85+ years, which is to understand every safety incident is preventable, expect a fair profit, impress the clients by being better than average, and create a positive environment that attracts high-performance employees that we must stay committed to.”
“Coming out of COVID, there was some pent-up demand for services, but that has worked its way through the market,” says Shawn Burnum, vice president of operations at Performance Contracting Inc. in Kansas, responsible for PCI offices in Des Moines, Kansas City, Springfield, Mo., Austin, Boston, Albany and Washington, D.C. “It is difficult to estimate to what degree the market changes are a result of COVID or a reaction to the economy as a whole,” he says.
Many of the larger new jobs are a result of government support through the Chips and Science Act or the Inflation Reduction Act: green jobs such as EV battery plants or technology projects for microchip manufacturing. Soaring inflation has cut across any project that was on the threshold for financing. Residential towers, speculative space and hotel/entertainment spaces have softened. Medical and government spaces that have consistent budgets for construction may have work, but less is done for the money, and they are not anxious to spend on significant projects.
“There is still nice work in the pipeline,” Burnum says. “I am not trying to appear negative. Work is targeted under the government supported programs … or smaller work for repeat clients. Kansas City had work with a new airport and is hosting the World Cup, so we have work in preparation for that event.”
Bill Fritz, CEO of Mission Interior Contracting, LLC in Texas, summarizes the situation for his company. “Office tenant finish opportunities are reduced by 40% to 50%. Retail has been soft; restaurant and fast-food buildings at the same pace. We see more competition, higher material and labor costs. Overall business is not back to 100% pre-COVID, when talking materials and labor cost inflation factors. Payments are still within terms. The realistic view is that cost will be more due to all factors of materials, labor and overhead.”
He has noted much more competition on the same projects due to reduced activity in office space retrofit. Steps that Mission Interiors is taking include “continuing to reduce overhead, managing projects more efficiently, coordinating materials with long lead times effectively, and using technology in the field to monitor job progress and changes.”
In Hawaii, Michael Mazzone, president of Statewide General Contracting & Construction, Inc., says, “The biggest change has been the delay in projects starting. Before COVID most of our projects began within 12 months of bidding. We are now starting projects we bid in 2021.”
And, there has been quite a shift in Statewide’s emphasis. Mazzone says, “Pre-COVID we worked exclusively on commercial and government-type projects. We have now branched out and have begun to perform residential projects. Payment terms are more advantageous for our cash flow. With the government projects, we have to wait from 120 to 160 days to receive progressive payments. With residential projects we receive a percentage payment up front and full payment within 30 days.
“Before 2020, we worked exclusively though general contractors. In 2021 we began an advertising campaign with TV and radio ads. This has opened the residential market to us. We have also participated in several home and remodeling shows as a vendor showing our services to the public.”
Adam Barbee, project executive at Daley’s Drywall in California, reports, “There has been a significant slowdown in some sectors for sure, particularly in new commercial construction. Tenant improvements/office building projects were mostly impacted as remote work reduced demand for these spaces. This led to a shift toward adaptive reuse and repurposing vacant commercial properties.”
“The changing landscape presented an uptick in the housing market, especially affordable housing projects,” he continues. “We’ve seen a boom in this type of construction that has brought good opportunities for our workforce.”
“To capitalize on these opportunities, we adopted key strategies for cost reduction,” he continues. “We invested in more technology to help our team with prefab: BIM, internal software and the like. This resulted in overall labor reduction so that we can be as competitive as possible to deliver top results to our clients.”
It’s not easy to summarize such a range of changes around the country, but there are some common denominators. Office space construction has died. Healthcare, government-supported projects, technology spaces and some residential construction are emerging opportunities. In general, the cost of labor and personnel is high, and there is a continuing shortage of skilled labor. Material costs and availability seem to have stabilized. And, as ever, AWCI contractors are being resourceful in turning challenges into opportunities.
David C Phillips, a freelance writer and photographer, is an original founding partner at Words & Images.
