Recent year-end reports on non-residential construction activity softening and a plunging average project backlog are giving West Michigan construction leaders some reason for concern going into 2021.
The average construction project backlog has decreased by 1.7 months over the past year, and in November was at 7.2 months. The November Architectural Billings Index — an economic indicator of non-residential construction — decreased to 46.3 in November compared to 47.5 in October.
Meanwhile, talent is an ongoing issue that’s top of mind for architects and builders, said Norm Brady, CEO of the Associated Builders & Contractors West Michigan chapter.
“There are fewer graduates coming into the market every year and that will continue,” Brady said. “At the same time, the number of people retiring out of the industry is at an even more accelerated rate.”
Michigan had 123,576 high school graduates statewide in 2008, and the number has been declining every year, according to data from the Western Interstate Commission for Higher Education. In 2030, the number of high school graduates is projected to be 87,000. Additionally, 48 percent of people employed in the construction industry are expected to retire over the next 15 years.
Equity needs to continue being part of the talent discussion and how construction companies across the industry reflect that will ultimately drive change, said Mike VanGessel, founder and CEO of Rockford Construction Co.
“We need to keep looking at how to make sure folks who are living in the community reflect our workforce,” VanGessel said.
Construction material cost fluctuations are another factor that builders are closely watching. Costs of material including lumber and steel soared in 2020 and were unpredictable for a variety of reasons, including wildfires on the West Coast and tightened supply chains, though VanGassel expects those high costs to stabilize in the new year.
“It was difficult to manage that, but I do think we’ve hit a plateau,” VanGessel said. “What will happen first is the supply chain will correct itself, I think the margins will correct, and we’ll see things come down in price some.”
Architecture firms reported they are modestly optimistic about 2021, even though architecture firm billings declined for the ninth consecutive month in November, according to a report from the American Institute of Architects. The biggest concerns that firms reported to AIA in a survey involve profitability, managing day-to-day business operations, and the far-reaching effects of the COVID-19 pandemic.
Despite these concerns, construction and design leaders hold some optimism for 2021. News of a vaccine could make developers more confident to pull the trigger on projects that have been delayed by the pandemic, Brady said. This could potentially help increase the construction backlog and allow the ABI index to recover, he added.
VanGessel said there will likely be more remodeling and smaller projects that will carry firms in 2021, as well as a number of bigger projects for Rockford in particular. Rockford is expected to start construction in February on Perrigo Co. plc’s new North American headquarters in downtown Grand Rapids. The $44.8 million project is set to wrap up in May 2022.
“Generally speaking, optimism is good among (ABC) members,” Brady said. “Most have done relatively well financially in 2020. Work volume remained strong, and there is reason to believe 2021 will continue on in the same vein and things will be good with more aid and success with the vaccine.”