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Arizona Construction Activity Up 6% Topping $9.5B for FY 2012

By Eric Jay Toll for The Arizona Builder’s Exchange

For the first time in five years, Arizona contractors saw construction market activity rise two years in a row. The $9.5B total volume is a result of a 6.2% jump over 2011 and marks the return to a growing market. Activity for fiscal 2012 increased more than $500M above 2011, but just barely topped 2010’s $9.3B market.

While it’s good news in the marketplace, the dollar volume in 2012 is still less than half the $22.4B the State Tax Facts shows for the fiscal year ending June, 2007—the last year of increasing contracting sales in Arizona.

Jumping 8.4 percent over 2011’s volume, activity in June kept the momentum going. Close to $850M was reported, marking three consecutive months of increases. It’s a positive trend upward, however, recovery has a long way to go.

Commercial Moving Up With Smaller Projects

New construction activity is looking up for contractors in the market, but the projects are smaller. “We are seeing an uptick in projects in the area, primarily an increase in smaller scale, or under $20M, jobs,” says Dan Pierce, president of Kitchell Contractors. Pierce says he hasn’t seen cost increases pushing bid numbers higher, which mirrors a report by AGC earlier this month.

The future is hazy, however. “We don’t see much change in the numbers and anticipate it will be fairly flat for a few more years,” projects Pierce. Like many builders coming through the market downturn, Kitchell focuses its efforts on core capabilities—design build, CMAR, construction management, development and property management—and these builders are holding their own in the market,

Residential Housing Construction Surges

“In the Phoenix area, residential construction starts are up 80 percent over last year,” says Jim Belfiore, president of Belfiore Real Estate Consulting. “Tucson is up 35 percent, and the rest of the state is up, but not as strong as the Phoenix market.” Belfiore sees a strong 2013 with a projected 56 percent residential growth compared to 2012.

Multi-Family Projects Breaking Ground

Heavy entitlement activity—particularly in Scottsdale—puts multifamily construction in the spotlight. Taylor Morrison recently completed construction and opened a complex in Tempe. Alliance Residential is building two Broadstone complexes and the Optima Camelview apartments are under construction. There are more than 6,000 multi-family units with Scottsdale entitlements, but few in the industry see all of those units coming out of the ground.

Gilbert, the other market with new multi-family entitlements, has issued approvals for complexes, but according to a city spokesman, no permits have been pulled for the nearly 1,000 approved units.

In Tempe and Tucson, several large-scale luxury student housing projects are under construction.

Corporate Offices and Industrial Spec

For the first time in four years, spec buildings moving forward. Douglas Allred Company has two under construction in the Price Corridor, Chandler. A third was selected by InfusionSoft as its new headquarters.

Intel has a 300K SF R&D facility under construction at its West Chandler campus, as well as pulling permits for new accessory buildings serving the FAB 42-1 on the Ocotillo Campus.

Looking ahead into 2013, Wentworth Properties announced plans for 1M SF in industrial space.

Medical Office Buildings

Three new hospitals are under planned or underway in the West Valley with major expansions underway at Mayo Clinic in Phoenix and Cancer Centers of America in Goodyear. In Eastern Arizona, Tucson, and the Phoenix metro, a number of hospitals and major clinics are planning to start construction to expand existing facilities.

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