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What Does the Future Hold?

The most common complaint among contractors today seems to be the acute lack of crystal balls, for there’s no telling the future without one, it seems.

Or is there?

Perhaps. For would not a frank assessment of current activity levels compared to those of both the recent and not so recent past—viewed through the lens of experience—give that crystal ball a run for its money?

Likely so. And that is the approach we took in order to answer the question on top of most contractor lists: What does the future hold for our industry?

Here are some answers from various members of the Association of the Wall and Ceiling Industry.

2013 Predictions

This was the question: Based on observable signs and past experience, will next year’s wall and ceiling activity increase, stay level or decline?

James M. Keller, executive vice president at Grayhawk, LLC in Kentucky, observes, “For us, the last half of 2012 has been as strong as the last two years combined. This, I believe, shows pent-up demand, which bodes well for the coming year.”

Peter Battisti, operations manager at KHS&S Contractors in Washington, has a different outlook: “I see no signs that 2013 will improve in terms of commercial construction. We need to see substantial improvement in order to raise our profit margins. This, from where I sit, seems unlikely.”

On the other hand, Dick Mettler, executive director of the Northwest Wall & Ceiling Contractors Association, says he sees “some good long-term signs, such as recent announcements of several new hotel projects. Also, while condos are down, apartment buildings are on the rise. Based on that, I see an increase over the next year in the Seattle area.”

“Another good sign is that the architects’ building index is inching up,” he adds.

Walter Scarborough, an architect in Texas, shares, “These days, I work up more proposals than before—about 80 percent commercial and 20 percent governmental. However, it’s hard to tell whether this is due to a rebounding economy or that I’m better known these days.”

Robert Aird, president of Robert A. Aird, Inc. in Maryland, is all good news. “Frankly,” he says, “these days we are overwhelmed with bids and work, primarily renovations. As for new buildings, local architects report that they are seeing an upswing in the number of new projects. Of course, we’re not at pre-recession levels, but new buildings are coming on line.”

Charles B. Antone, a consultant with R.J. Kenney Associates, Inc. in Massachusetts, observes, “I actually don’t foresee an increase in 2013—at best, we’ll continue at the current level. Also, I believe housing will stay level for the next three to four years, but that it will not go back down.”

Kevin G. Biddle, president of Mader Construction Co., Inc. in New York, surmises, “I believe, based on input from local architects and construction managers, that 2013 will be a relatively busy year in Western New York.”

Robert Heimerl, president of Mowery-Thomason, Inc. in California, is less certain. “We see a substantial increase in bid requests one month, then the other way the next,” he says. “Overall, though, I see a little more work coming to the bid table, especially in private remodeling.”

Dave DeHorn, chief estimator at Brady Company in Southern California, suggests an improvement: “Today, we see more projects out for bid. These will break ground in anywhere from three to 12 months depending on the size of the project, but based on that I think 2013 will be slightly higher than 2012.”

Craig Daley, president of Daley’s Drywall & Taping in Northern California, is quite optimistic. “During late 2011 and through 2012,” he says, “the San Francisco Bay Area has seen a significant increase in projects due to increased demand for high-tech office space, and due to pent-up demand for multifamily units. While things have leveled off now, they’re holding at the higher level and we see 2013 as a good year.”

John Hinson, division president at Marek Brothers Systems, Inc. in Texas, projects, “What I see is a slow, steady increase in projects, which I think will continue into 2013. Unless, that is, tax relief is not extended and we all head for that fiscal cliff. Should that happen, owners will step back onto the sidelines to ride out the uncertainty this would create. Of course, I am speaking specifically about the Southern market—Texas, Oklahoma City, the Gulf states.

“Also, I’ve seen our residential market come back, with a strong increase.”

Andre Grebenstein, project manager at The Martin Group LLC in New Jersey, has a different take, “Lack of hiring among clients’ and architects’ leads me to believe that we will stay stagnant for 2013.”

Mike Heering, president of F.L. Crane & Sons, Inc. in Mississippi, takes a brighter view: “There are more projects out there today for pricing than we have seen in the past couple years. Also, we can gauge the future by gaming and hotel activity, and this has come to life as well after doing nothing much over the past couple of years.”

The broad view seems to be that there are many definite signs for increased wall and ceiling activity now that we know the clearly discernible light at the end of the tunnel is not an oncoming train.

Bidding Activity

This was the question: Today, do you see more bid requests than you did six months ago. If so, by what percentage, and for what kinds of projects?

Keller (Kentucky): “We do see more requests from developers of medical office buildings. However, we still see little retail, hotels and really no government either.”

Battisti (Washington): “The number of commercial bid requests is down while the competition has increased since competitors who carry too much overhead have to secure work at any cost in order to cash flow their businesses while riding out the storm.”
Mettler (Washington): “From where I sit, the number of requests is definitely inching up, though not for huge projects yet. We mainly see medical office renovations and such. The good sign is that the mid-size contractors see too many bids to address them all.”
Aird (Maryland): “Our bid tracking list is as long as, or even longer than, it’s been in the past several years, many for renovations in the commercial sector, many for hospital additions and renovations. We also see a lot of school work, both new and renovations.”
Biddle (New York): “The bid requests are down over the past six months, but I believe we will see a lot of hospital and school work as we move into 2013.”
Heimerl (Southern California): “It is better than last year this time. We had a lot of public work projects then, but the problem was that low bidders made it impossible to make a profit on them.”
DeHorn (Southern California): “Yes, we are seeing more bids. I’d say an increase of about 20 percent. Hospitals and medical office buildings continue to be strong. Courthouses are also on the upswing, and Los Angeles International Airport has multiple projects that are currently in the bidding and design phase.”
Daley (Northern California): “Actually, bid requests increased about a year ago and are now holding steady. However, while there is now plenty of work to bid, there are still too many of us chasing it. The good sign is that I see new commercial building projects going forward—those that had been put on hold during the recession.”
Hinson (Texas): “We have seen a slow and steady increase in the number of projects to bid.”
Grebenstein (New Jersey): “The bidding activity has increased by about 50 percent.”

Heering (Mississippi): “We have seen a modest increase—I’d say by 20 to 25 percent—over the last six to 12 months. Mainly in the medical field, but some schools and retail centers as well.”

There is little doubt that bidding activity is on a fairly steady upswing, and this spells more projects for 2013.
Turning the Corner
What signs should we look for to determine that the construction industry has finally turned the corner?

Battisti says, “A better question to ask is, ‘What will the industry look like when things improve, and what do we consider an improvement?’ “I believe that the next five years will see a consolidation of subcontractors and general contractors as a result of increasing costs of doing business. Those who survive this consolidation will see moderate amounts of work and improved profits.”

Mettler says, “When we see a sustained increase, without even minor dips, then we’ll have turned the corner. My guess is that we will see this in the next two years.”

Scarborough adds, “I know I will have turned the corner when I am consistently busy and have a couple of months of new projects in my in-basket.”

Aird admits this is a difficult question. “We still see construction companies and architects go out of business,” he says, “while other companies report that they are as busy as they have been in 10 years. I believe that the construction business is evolving at such a pace that companies that do not continually grow their capabilities and knowledge will struggle. In our case, we have expanded into new areas of work—same skill sets, but different materials—and that has been instrumental in our surviving this economic downturn.”

Antone says, “I believe that we will have turned the corner when available housing and the housing demand balance again. The market can usually sustain one to two million available houses, but today, with six million or so shadow inventory units held by the banks (units either foreclosed and empty, about to be foreclosed, or foreclosed with mortgage holder still living in the property), the market is still vastly oversupplied at this point.

“Until demand matches supply, we will not have turned the corner, and the housing market, and with it the construction industry, will remain too volatile to really predict.”

Biddle says, “I am looking for more private projects as opposed to government projects. Once the private sector is back in health, we’ll have turned the corner.”

Heimerl says, “The barometer here is: What are the commercial architects doing? Are their sales up or down? I’ve heard that the Southern California architects are busy today, and that is a good sign.”

DeHorn says, “Housing needs to see a continued upswing. Once that happens, commercial will follow. That said, I don’t think this will happen before 2015.”

Daley says, “We will know we’ve turned the recession corner once we can bid jobs with a few more profit points; when there is enough work to go around to let us focus on profits instead of just staying busy at cost.”

Grebenstein says he will know that the industry has turned a corner “when I see busy architects and engineers again.”

Heering says, “I look for positive feedback from our [AWCI] membership at conventions and meetings. That’s the best barometer I know.”

Hinson adds, “We will have turned the corner when my customers call me to discuss new projects; when they are no longer worried about the numbers, but call us because they know we can and will do the best job for them. In other words, when quality and performance once again take the front seat and become more important than the number—that’s when I know that we’ve turned the corner.”

Will We Ever Boom Again?

Will we ever return to pre-recession activity levels?

Keller doesn’t think so. “No, those days are gone,” he says. “No one wants to put it all on the line again. Banks are much touchier these days, bonding has been roped in, and real estate values have lost way too much. It is a different world now.”

Battisti says no as well. Why? “Mainly because those who make policy and invest have realized that these big swings do more harm than good and create unpredictability,” he says. “If big swings are eliminated, the general population seems happier knowing the economy is predictable rather than not.”

Mettler agrees that “no” is the correct answer. “We may reach 2006–2007 levels,” he says, “but not 2008–2009.”

Aird thinks that “in some ways we have already returned to pre-recession activity levels. That is not to say that people are throwing stupid money around and over-committing themselves. Rather, that for a well-managed and forward-looking company with a good reputation, there is as much work as one could want.”

Antone says, “Those levels were abnormally, unsustainably high. We will not see them again.

“There used to be a correlation between house prices and the median income level. During the last boom houses were way, way too inflated in relation to income level, and that created an unsustainable bubble. We will never see those levels again.”

Biddle disagrees. He says, “I think those levels will return. I believe that there is a ton of money sitting on the sidelines and that the owners are getting closer and closer to putting it back into the game.”

Heimerl thinks we will see pre-recession activity levels, but “it’ll take at least another five, six years to get there.”

DeHorn says we won’t. “I don’t think so,” he predicts. “We now have regulations in place that hopefully will prevent banks and other lenders from lending to those not qualified. Leading up to the bubble bust, far too many people were living beyond their means.

“Also, I think a lot of us will be more cautious in the years to come and remember that we don’t want to return to the recession that we are still in.”

Daley says, “As the United States is forced to compete more and more with a world economy, I don’t see us returning to pre-recession levels. Also, the big manufacturing companies have too many off-shore options to put all their growth plans here at home.”

Hinson doesn’t think the numbers will climb either. “I think that slow and gradual growth is not only the way to go, but it is also the new normal,” he explains. “We have been burned by these bubbles and busts. I don’t think we’ll go there again.”

Grebenstein isn’t sure. “It’s hard to tell,” he says. “My best guess is that it will remain at current levels for at least another two or three years. I see no significant catalyst spanning the market to bring significant change.”

Heering says we might see pre-recession levels, “but I think it will take a long while to see it. I think we have all taken such a hit over the last several years that we will be very reluctant to go down that same path ever again.”

The common wisdom seems to be that no one wants to experience this roller-coaster ride again, and that a steady but sustainable growth is, by far, the better alternative.

Heering sums up the situation nicely: “We have been sailing uncharted waters for such a long time now that it is hard to predict precisely where we are going and when we are going to get there.

“But I think that those of us that still survive will make out of this long recession as long as we are prepared both to make the cuts that we all find so hard to make, while also being prepared to grow when we feel the time is right.”

The consensus seems to be that things will not get worse, but neither we should expect to see pre-recession activity levels anytime soon, if ever.

Instead, in most markets, we should expect a slow and gradual—thus sustainable—activity improvement over the next several years, a trend vastly preferable to another boom/bust cycle.

Los Angeles–based Ulf Wolf writes for the construction industry as Words & Images.

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