Despite a number of recent global and national industry reports pointing to potential slowdowns in the construction sector, West Michigan contractors say they remain busy and confident for the foreseeable future.
Just ask Josh Szymanski, business development director at Owen-Ames-Kimball Co. (O-A-K).
The Grand Rapids-based general contractor has a pipeline of work in diverse sectors that extends well into 2017, Szymanski said, adding that the firm is on track to generate between $160 million and $170 million in revenue this year and next year, up from about $150 million last year.
“Industrial clients tied to international markets are a little skittish right now, but otherwise things are going great guns,” he said. “Our experience is that (work) hasn’t slowed down at all, and there’s been no real fallout from global or national trends.”
That industrial clients remain wary to pull the trigger on large-scale capital projects right now seems to reinforce the view of economists in West Michigan.
Long a dominant economic force in the region, manufacturing has begun to plateau in recent years, said Dr. Paul Isely, the associate dean at Grand Valley State University’s Seidman College of Business, for a previous report in MiBiz.
“Certainly, what we’re starting to see is the growth in manufacturing is slipping each cycle,” Isely said in December. “Every time we take that yearly turn since 2013, each cycle it’s slowed down a little bit. Because manufacturing was the push for us, that slow cycling down of growth there is going to start to impact our ability to see the big job growth we’ve seen over the last few years.”
While industrial construction work continues to come along in fits and starts for O-A-K with some clients even canceling work on the boards, the rest of the firm’s backlog remains strong for the next several months, Szymanski said.
Clients in the firm’s pipeline include 17 K-12 school districts, faith-based organizations, food processors and office users, including the renovation of the Calder Plaza building at 250 Monroe Ave. NW in downtown Grand Rapids, which CWD Real Estate Investment Inc. acquired last year.
The diverse pipeline at O-A-K generally mirrors what many other general contractors in the region are experiencing. Based on recent conversations, construction firms such as Orion Construction Inc., Triangle Associates Inc. and Pioneer Construction Co. all say they have numerous projects across a range of customers lined up into the coming year.
Also potentially adding to the portfolio of work for area contractors and subcontractors: the addition of Las Vegas-based data center operator Switch Ltd. at the former Steelcase pyramid building in Gaines Township, south of Grand Rapids.
As MiBiz previously reported, Lansing-based The Christman Co. has been selected as the general contractor for the initial $400 million construction project. Sources familiar with the project said that dozens of subcontractors already are working at the site.
Executives at Switch said the cloud-based data center company plans to use all West Michigan-based contractors for the project, which could have a construction period of 10 years or more.
While West Michigan contractors report robust workloads, a handful of recent economic reports could give some cause for concern.
The American Institute of Architects’ Architectural Billings Index for January slipped into negative territory at 49.6, compared to 50.9 in the prior month. Any score below 50 indicates a decline in billings. The Midwest showed signs of improvement with a reading of 48.9, up from 46.1 at the end of 2015.
According to the most recent Construction Economic Update report in early February from Washington, D.C.-based Associated Builders and Contractors (ABC), unemployment in the industry increased in January to 8.5 percent, or about a full percentage point higher than the previous month.
ABC Chief Economist Anirban Basu contrasted the construction industry’s unemployment rate with that of the rest of the economy, which decreased to 4.9 percent, the lowest level since February 2008, according to the report.
“However, one could still view the report as positive from the perspective of the typical contractor,” Basu said in a statement. “Contractors have been wrestling with shortfalls in appropriately trained workers. The implication is that more people are beginning to realize there are growing opportunities to find work in the industry. It is also likely that the rising unemployment rate is a reflection of large numbers of dislocated energy workers now looking for work in occupations where their skill sets translate.”
Basu also cited the seasonality of construction work and that “much of the weakness was in heavy and civil engineering, which by most accounts can look forward to a brighter future, given recent federal funding commitments.”
“For now, the nonresidential construction recovery remains in place, but there are indications that cracks are forming in the ongoing economic recovery, and that those cracks could widen further as the year progresses,” Basu stated.
Other construction trade organizations, however, say that their members have largely avoided any fallout from the broader global market tumult, according to Damian Hill, vice president of operations, communications and government relations at Lansing-based Associated General Contractors of Michigan (AGC).
Echoing O-A-K’s Szymanski, Hill said that AGC members maintain a hefty workload for the next several months.
“The beginning of the year market meltdown was a concern, but work continues to go on,” Hill told MiBiz. “Our members are confident about the rest of this year and the first half of 2017.”