West Michigan’s construction executives hold to the notion that the region’s industry will continue to accelerate for the foreseeable future, despite increasing concerns of a broader economic slowdown.
Count Paul Lemley, senior vice president of Walker-based general contractor Triangle Associates Inc., among those executives with a positive outlook.
“We’re not seeing that impact yet and I’m not sure that we’ll see it this year,” Lemley said. “Our backlog is very strong and we have a very strong pipeline with clients who have established budgets.”
But despite his confidence, Lemley said he’s absolutely paying attention to recently released national economic data.
In early June, the United States Bureau of Labor Statistics (BLS) released one of the weakest jobs reports in years when it noted that only 38,000 jobs were created in the month of May.
Still, the U.S. unemployment rate declined 0.3 percent to 4.7 percent.
The news caused Washington, D.C.-based Associated Builders and Contractors, a construction industry trade association, to release a strongly-worded statement addressing one of the group’s leading policy initiatives: the sector’s long-standing labor shortage.
“(May’s) jobs report was earth-shattering,” ABC Chief Economist Anirban Basu said in a statement. “While the construction industry unemployment rate fell to its lowest level since October 2006, the fact that the unemployment rate has shed 3.5 percentage points in two months while losing 20,000 jobs is indicative of a shrinking labor force. This signals the worsening of the industry-wide skilled labor shortage.”
Lemley, who also sits on the board of directors of the West Michigan chapter of ABC, agreed with the economist.
Overall, he said hiring at Triangle has tapered off in recent months, largely because of a “disconnect” between the need for skilled trades and a lack of available workers.
Additionally, he said that wages have been on the rise at a rate that he believes is “outstripping inflation,” but he was unable to provide specific numbers.
“There’s still a big gap between what companies would like to hire (and what’s available),” Lemley said. “But if you look at available positions … that’s the mismatch.”
GROWTH IN DIVERSIFICATION
Despite the weak economic data, Lemley remains unphased.
In his role at Triangle Associates, the executive largely works with national retail, education and manufacturing clients. Lemley said that in the years coming out of the recession, Triangle Associates — as well as most of the larger general contractors in West Michigan — have made careful efforts to diversify and expand beyond the region.
“We all have a presence outside West Michigan and that is helping,” Lemley said. “I’d be concerned about general contractors with a presence only in West Michigan.”
Beyond diversifying the firm’s geography, the company continues to grow in a wide variety of sectors.
Triangle Associates finds retail construction work to be strong, but much of the present work consists of renovations rather than new construction, Lemley said. Additionally, manufacturing and education continue as busy sectors, he added.
The company is also the general contractor for the $28 million renovation of the historic Rowe Hotel building in downtown Grand Rapids.
Upon completion later this year, the 11-story building — being redeveloped by Grand Rapids-based CWD Real Estate Investment Inc. — will offer 77 market-rate apartments and ground-floor retail, including a satellite operation of Detroit-based Atwater Brewery.
Overall, Lemley said he expects revenue growth for the company in the range of 20 percent.
Other West Michigan construction executives agree with Lemley on the diversification strategy.
“(W)e are an intentionally diverse company — in terms of regions, clients and services offered,” said Shane Napper, president of construction at Grand Rapids-based Rockford Construction Co. Inc., in an email to MiBiz. “That gives us a more stable platform to conduct business over the long term.”
Napper notes that Rockford’s backlog of work also contains a variety of projects, including housing, health care and education.
“There may be a few bumps along the way, but we believe that the slow, steady growth that has been the hallmark of the recovery from the Great Recession will continue a bit longer,” he stated.
STANDING 'ON GUARD'
Nationally, economists and business leaders continue to debate whether May’s jobs report was just a fluke or should be taken as an indicator of a true economic slowdown.
However, ABC’s statement notes that indicators out of the automotive, retail and housing sectors continue to show some positive signs.
“These positive influences may be enough to keep the U.S. economy out of recession this year,” Basu of ABC stated.
Still, Basu cautioned contractors and developers to “be on guard,” particularly as financial markets continue reacting to mixed indicators.
Paying attention to the broader economy could be a good idea for developers and landlords given recent results from another indicator.
The fourth quarter 2015 Real Estate Distress Research Index from Polsinelli | TrBK declined from the previous quarter to a level of 24.88. While the real estate index reached a new low — meaning, the levels of distressed real estate are at their lowest since the fourth quarter of 2010 — the decline comes after the first-ever increase since the benchmark period. That led researchers to believe that the levels of distressed real estate could be creeping up after a prolonged period of improvement coming out of the recent recession.
The national index, which is published by Kansas City-based law firm Polsinelli PC with data from TrollerBk.com, is based on Chapter 11 bankruptcy filings by entities with assets greater than $1 million. The filers are classified as “single asset real estate,” which often involves companies that are “solely in the business of owning and leasing a single property such as an office building, health care facility, retail outlet or multifamily apartment building,” according to the report.
Additionally, another common indicator watched by general contractors recently showed positive momentum.
The Architecture Billings Index (ABI) released in late May by the Washington, D.C.-based American Institute of Architects has posted three straight months of positive growth. The index tends to indicate good news ahead for contractors as architects generally bill nine to 12 months ahead of when the work would head to construction firms.
The AIA reported an April billings index score of 50.6, down from 51.9 in the previous month but still reflecting an increase in architectural billings.
“Architects continue to report a wide range of business conditions, with unusually high variation in design activity across the major building categories,” AIA Chief Economist Kermit Baker said in a statement. “The strong growth in design contracts — the strongest score for this indicator since last summer — certainly suggests that firms will be reporting growth in billings over the next several months.”
Multiple West Michigan contractors have told MiBiz that AIA’s billings index tends to be one of the main indicators they track for clues into the health of the industry.
Despite the mixed signals, Lemley and others in the region maintain that growth opportunities remain for proactive companies.
“I think we’re in great shape and everyone in West Michigan construction (I talk to) feels the same way,” Lemley said. “Any dip will be a blip on the radar.”