Industry outlook.

PositionIndustry overview - Interview

What is the status of Utah's commercial building construction industry today and, more importantly, what do you see down the road?

MOORE: Some of us have been fortunate enough to pick up some work and increase our employment, while others are currently on a down cycle. Compared to other states we're working in, Utah is in a pretty good spot. It seems like we have work to go after, although we sure keep ourselves competitive. The work we get seems to be at margins that owners sure appreciate.

It feels like the marketplace has got some traction a bit. We're seeing things like office buildings that have not been out there for many, many years being a popular product. Manufacturing seems to be coming back in Utah a bit more. Distribution, warehouses-there are some projects out there getting some traction.

I wish we all had crystal balls, but I think there is some work out there to go after. Is it what it used to be in 2008 and 2009? I don't think so. is it going to get better anytime soon? I'm not sure.

D. CAMPBELL: WeVe managed to stay busy. Of course, we've said for the last three years that profit margins are down. It seems like every time it looks like its going to slow down, there is work out there. Some of the developers and clients are releasing work they've had on the shelves for maybe two or three years. They are finally seeing a little light and releasing some work. So we have a steady flow, but it's not hot.

Are there any hot sectors?

BUSWELL: For some of us involved with the International Council of Shopping Centers, in the last six to nine months there has been more traction as far as having national and regional retailers talk about expansion plans. They are not necessarily all brand new buildings. They are doing a lot of remodeling and going to second-use buildings. But after a couple of years where retailers would not talk about building stores, in some of the more recent meetings, there have been discussions regarding building 25 stores a year or five stores a year and being able to expand. We think that is a good sign as far as retailers looking for locations.

And like Rob said, Utah really is much stronger than our sister states that have extreme vacancies--they have been harder hit than Utah.

ZWICK: We are starting to see more of the private deals with some of the developers, where before it was a lot of estimating for them for free. Now they are getting more comfortable and maybe spending some money

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The other sector that I see coming on strong in Utah is the multifamily division. At least in our firm, we are pricing a lot of multifamily apartments. Nobody wants to own; they want to rent. So we are going to continue to see that.

But, again, like everybody says, the fees and margins are ridiculously low, way too low. We cannot keep operating at these low fees. It's frustrating. And also general conditions--we are not staffing a project the way it should be staffed. As a result, you have challenges through the course of construction because its not managed properly because we have to be so low on our fees.

So construction is on sale still. It's a good time to be building.

ZWICK; Our fees need to go up. There's no question about it.

GARFF: We are a small commercial contractor. Some of our clients are wanting to talk to us that did not want to talk to us a year ago, but mostly its still talk. We are seeing a very flat market. My general opinion is we've hit bottom, but we are still bouncing along the bottom. And there are no fees out there in these jobs. Many contractors like us are just hanging on and looking for better days. But I think we are in this for a couple more years.

WILLIAMS: As architects, we see things a little sooner. We're optimistic, actually We're busy. And maybe we're unique from other firms, but we've had a lot of owners that have been waiting to build, and they understand that it's kind of a buyer's market now. They can get great pricing. So they are starting to pull the trigger and do some more building.

In the past, it's been mostly apartment buildings and industrial, but we have student housing, assisted living. We've got some schools coming online, and the other one that is pretty big is hotel and resorts. We actually have some international clients that are backlogged for all of the next year. And we have a client coming from Japan in December, and they are looking for Utah builders that are willing to go build in Japan. They claim they have $2.5 billion in contracts.

It's easy for us to do international work because it's easier for us to travel than for contractors, but there are opportunities if people want to tackle something like that.

BULLARD: A couple of disturbing trends seem to be continuing: the margin compression is one, and I don't see anything on the horizon that indicates a relief to that. And there is excess capacity in our industry. How do you weed that excess capacity out?

The disturbing thing is that the margins that the generals are getting have no relation to the risk that is being taken on projects. Some of the very low margins that the subcontractors have been bidding are starting to be booked. And it takes awhile--it takes a year or two before the numbers hit on some of the large bids from our subcontractors, and once those hit the books, there will be some reassessments about those markets. We are probably taking more risks in the marketplace than we should. Because they don't have margins either.

The most disturbing trend that I see is a setback to our industry in terms of the willingness of owners to look to us for advice during the critical stages of a project's development. AGC has made a big push in past years for the construction industry to be thought of as a professional service industry. And because of this recession, that message is not getting through.

All I can say is that an owner going back to a hard-bid status, either they are just very naive and think that they are going to get the low dollar for a project or they simply don't value the services that we are offering during preconstruction. And if that is the case, then we need to reassess the type of information and services we are giving during that critical period of a project. Because moving away from a negotiated CMGC marketplace into a hard-bid marketplace is a bad thing for our industry.

Alan, can you give us insight on what you are seeing as a subcontractor on the commercial end?

JOHNSON: At a sub level, i honestly believe that building up to what you guys want and expect in a subcontractor is going to deteriorate with the current margins. And the...

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