Construction industry hunkers down for a difficult year

Commercial, industrial and infrastructure development was slim pickings in 2009, but compared to the outlook for the coming year, 2009 may prove to have been a bountiful harvest for many contractors.

Mark Beauchamp, co-owner of Shaheen Beauchamp Builders in Carson City, says his firm won a good amount of work in 2009, but he doesn't see enough work in the pipeline to keep even the most well-established general contractors busy.

"We have our concerns about 2010," Beauchamp says. "We see a drop off or flattening out."

That's not encouraging news for the hundreds of general and subcontractors that struggled to stay busy over the past year. With industrial construction dead in the water for 2010, contractors will vie for the limited commercial and infrastructure work in the coming year.

Buzz Harris, assistant executive director of the Sierra Nevada Chapter of Associated General Contractors, expects the coming year to be very similar to 2009. The only difference, he says, is that most companies have come to realize that the barren construction landscape is the new norm, and they have slashed their workforces and overhead.

"Companies are running very lean," Harris says. "They know that there is limited public works projects due to lack of public revenue."

Shaheen Beauchamp Builders will chase additional medical office work and tenant improvements, Beauchamp says. The one bright spot, he says, might be the addition of some manufacturing facilities in south and east Carson City and Lyon County as tax-weary businesses vacate California.

"With what California is go through I think there is some pretty big push in Nevada to try and attract and lure manufacturing to this area," Beauchamp says.

Bidding has become so competitive that profit margins have become infinitesimal and contractors don't see the pressure lightening up in 2010. If anything, they'll have to sharpen their pencils even more.

One way contractors will boost margins in the coming year is to self-perform work with in-house crews rather than hiring subcontractors.

Increasing the geographical area in which they are willing to work is another step more contractors will take as the cupboard close to home stays empty.

"If a job made sense I don't know that we wouldn't go anywhere," Beauchamp says. "If the right project came along we'd take a look at it."

With several new super-sized industrial warehouses still sitting vacant, and widespread industrial vacancies in most submarkets, developers don't see any more big warehouses going up for several years.

Doug Roberts, senior vice president with Panattoni Development, says current industrial inventory can satisfy demand for the next two to three years.

"I don't think there will be any major ground-up projects," Roberts says. "We have plenty of space on market now without doing new building, and lenders aren't lending. Even if you could justify a project, you couldn't get a loan for it."

Roberts believes much of the construction work in the industrial sector for 2010 will come from companies performing major improvement work to reposition existing buildings, and perhaps a few smaller build-to-suit projects.

The AGC's Harris says the credit freeze remains a major obstacle to stifle new private construction. The main question, he says, is when will banks become confident and have the ability to lend to qualified owners so that the economy can begin a reinvigoration.

In the public sector, Harris says, tight budgets and inability to finance projects through the sale of bonds will continue to suppress development.

"This is a great opportunity for infrastructure, whether it be water, schools, universities, roads, sewers. It is a good bang for the buck it is a construction fire sale right now. Labor is available, materials costs are down, and you have got lots of people who are qualified. It is a great time to rebuild and move forward."