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Regional 2013 Outlook Shows Private-Sector Strength

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Both the Intermountain and Colorado construction markets are forecast to meet or exceed national industry expectations in 2013, according to several economic sources.

Rendering by LOA Architecture
CU Boulder will build the new East District Energy Plant as part of its upgrade of the main campus utility system.
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Earlier this year, McGraw-Hill Construction forecast a 6% increase in construction starts nationwide in 2013, following a 5% rise this year. FMI Corp. predicts new construction put-in-place will climb 8% next year, following this year's 5% increase. The National Association of Home Builders says the rebound in the national housing market is on solid ground, but adds that the big numbers are still a year or two away. The American Road & Transportation Builders Association predicts highway work will remain flat in 2013.

McGraw-Hill Construction economist Cliff Brewis, in his 2013 outlook for Utah and Colorado, forecasts 4% and 6.9% gains, respectively, in total construction starts in 2013 for those states. The region as a whole, Brewis says, is on the road to recovery but may take a while to get there. "It has been an extremely difficult recession and a different recession than most because this one was financially driven," he says. "It takes longer to recover from these recessions, even up to 10 years in some cases." But recovery is not consistent across the country, and areas with lower unemployment will lead the way, Brewis says.

The recovery in the Mountain States is being driven by a steady uptick in the housing market. "Single-family housing is the most significant bellwether of how overall construction will do," Brewis says. "And the region seems to have clarity in the positive direction of its housing market, both single family and multifamily." The McGraw-Hill Construction forecast for multifamily starts in Colorado calls for a 32.5% rise in 2013, after the 40% rise expected this year, and a 9% increase next year for Utah. Single-family home building will increase 26% in Utah and 27% in Colorado next year.

However, Brewis says the region will need an increasingly strong performance by the private sector to compensate for ongoing declines in public-sector markets. "State and local governments are still in distress, and it's going to take a while for them to get back to pre-recession levels," he says.

As a result, many industry insiders across the region, while hopeful for improvements next year, are taking a "wait-and-see" approach.

"The Rocky Mountain region should continue to realize modest growth through much of 2013, with a hopeful uptick by the second half of the year," says Bill Mosher, senior managing director with the Denver business office of developer Trammell Crow Co. "Certainly, continued job creation and household income growth are the paramount indicators, and real estate investment will follow."

Michael Gifford, president of AGC of Colorado, says he is "cautiously optimistic" about 2013, based on the state's improved construction employment—up about 12,000 jobs from a low in 2010 and with optimistic projections for coming years. Rich Thorn, AGC of Utah president & CEO, agrees: "In some sectors, Utah's construction has seen the bottom and we are anticipating a slight increase in activity. In others, we are seeing more of the same: very fierce competition for the same or lower volumes of work. On balance, we believe that Utah is heading in the right direction."

In Idaho, a healthy state budget and stable employment are reasons for optimism. "The outlook for construction in Idaho continues to improve," says Wayne Hammon, Idaho AGC executive director. "With a balanced state budget, favorable business climate, well-trained work force and growth in almost every economic sector, our state is well-positioned to capitalize on the economic recovery."

In Wyoming, Jonathan Downing, president of the Wyoming Contractors Association, says 2013 "will likely be more of the same, with some bright spots and some issues." Downing says the Wyoming Legislature will vote in 2013 on a 10-cent-a-gallon boost to the state's fuel tax, last increased in 1998, to raise $70 million for highways and bridges. Wyoming currently has the lowest gas tax, at 24 cents a gallon, in the lower 48 states.

In Colorado, highway and bridge funding may be up slightly next year, but the private market for heavy and utility contractors is expected "to be fairly stagnant," says Tony Milo, executive director of the Colorado Contractors Association, which represents the state's heavy-highway contractors. "But there are a few silver linings. Local ballot measures approved in Denver and Colorado Springs will generate some additional funding for infrastructure, and CDOT is expected to have a slight increase in bid activity due to changing their cash flow practices," Milo says. "However, even with these increases, roads and bridges statewide will continue to deteriorate faster than we can fix them."

On the design side, billings are up and many projects previously on financial hold are moving forward. "All of the discussions with clients, both large and small, indicate that more projects of varying sizes are being funded and released for construction after many months of being on hold," says Jim Jose, principal with Denver's path21 architecture and a board member with AIA Colorado. "We are strategically planning for moderate growth in company size and revenue for 2013."

Mike Ellsberry, ACEC/CO president and president of MKE Engineering, Thornton, Colo., says, "The local construction market will continue to improve through 2013, with most of the growth anticipated in the private sector…. One of the major challenges for our member firms will be planning for uncertain growth of our markets."

Besides housing and highway work, McGraw-Hill Construction forecasts strong regional growth next year in hotel construction (up 68% in Utah and 57.3% in Colorado), manufacturing facilities (up 29% in Utah and nearly 8% in Colorado) and retail (up 9% in Utah and 5% in Colorado). The multifamily market will continue its strong growth for the next two or three years across the region, Brewis says.

However, as ENR reported earlier this year, any projections require a big asterisk next to them because of the threat of the nation's so-called fiscal cliff, which would result in tax increases and across-the-board budget cuts of about 8%. Brewis says the Mountain States region could see an average 7% drop in construction if a "productive compromise" is not reached to resolve the fiscal crisis. The political standoff had not been resolved by press time.

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