September 1, 2011

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Article

Rough Road Ahead

Utah’s Commercial Construction Industry Still Searching for Recovery Signs

Gaylen Webb

September 1, 2011

The recession may be abating in other business sectors, but Utah’s commercial construction industry is still in a big chill, searching for signs the worst may be over.

“It’s a pretty bleak environment right now,” says Kip Wadsworth, president and CEO of Wadsworth Construction. “We are walking around on pins and needles in this economy, waiting for our representatives in Washington to get the deficit and budget problems resolved.” His implication is that questions regarding the general direction of the nation’s economy are causing businesses to keep their growth and construction plans on hold, thus hampering a recovery in the commercial construction industry.

Wadsworth’s pain is shared by other leaders in commercial construction. Rich Thorn, president and CEO of Associated General Contractors of Utah (AGC), a trade association made up of 500 commercial contractors, heavy civil contractors, subcontractors and suppliers, says the recession has felt more like a depression to him.

David Layton, president and CEO of Layton Construction, agrees. “Is it a depression? Absolutely. Utah’s commercial construction industry was hit hard.”

“Hard” might be an understatement, considering that Utah’s top four commercial construction companies—Layton Construction, Okland Construction, Jacobsen Construction and Big D Construction—lost more than $1 billion in revenues from 2008 through 2010. According to data reported by Engineering News Record (ENR), which annually ranks the top 400 contractors in the nation, the cumulative revenues of Utah’s top four commercial contractors fell from $2.94 billion in 2008 to $1.92 billion in 2010—a 35 percent decline over the two-year period.

Further, the decline has cost 38 percent of Utah construction workers their jobs. Workers now total approximately 65,000 compared to a high of 100,000 in 2007. The drop is tough to swallow for an industry that was enjoying nearly nil unemployment before the crash. A seasonal uptick this past spring saw employment increase 1 percent, but “that is still very dire news for an industry that is experiencing more than 20 percent unemployment,” says Wadsworth. “My internal analysis is that it may take a couple years for us to climb out.”

Despite the dire news, eight Utah-based commercial contractors still rank among ENR’s 2011 Top 400 list, which was released in May. Layton Construction is the 64th largest commercial contractor in the country and the largest in Utah. The other Utah companies on the list include Okland Construction (No. 78); Sterling Construction, parent company of Ralph L. Wadsworth Construction (No. 106); Jacobsen Construction (No. 132); Clyde Companies (No. 202); Big-D (No. 204); R&O Construction (No. 243) and Wadsworth Brothers Construction (No. 399). The rankings are based upon 2010 construction revenues reported by the companies to ENR.

CUSHIONING THE RECESSION
To be sure, developments like the massive City Creek Center in downtown Salt Lake City and the National Security Administration (NSA) Data Center project have cushioned the recession and continue to sustain the local commercial construction industry. “Without the City Creek project, Utah’s construction industry would be in far worse shape,” says Layton. “City Creek alone infused $1 million per day back into Utah’s construction industry.”

Unfortunately, the City Creek project is winding down and all of the construction resources now focused there must be deployed elsewhere for hiring to at least stay flat, rather than dip. “I don’t think there is a place for all of that resource to go,” says Layton.

The NSA Data Center construction project could not have come at a better time, yet it is not big enough to absorb all of the construction resources now focused on City Creek. And with no other big projects on the horizon, Wadsworth worries the state will experience another dip in construction hiring.

Meanwhile, over at AGC, Thorn is most worried about the small, closely held, family-type contractors that are doing half the volume of work they were before the economy went bust. “There has been a dramatic thinning out of licensed contractors statewide,” he says. At the end of these challenging times, Utah’s construction landscape may be supported by a “last-man-standing scenario,” he adds.

INCREASED RISK
As the recession continues, Utah’s big construction companies are scrambling to increase their market shares by reaching into regional and national markets. They are also looking at how they do business to make sure that, when the market does rebound, they are ready.

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