By Tasha Anderson for AZBEX

Despite construction employment and activity levels not reaching pre-recession peak levels, 2019 was still a very good year and 2020 is poised to be even better.

Such was the theme of the BEX 2020 Construction Activity Forecast event, held Wednesday, January 8^th at the Tempe Center for the Arts.

Nearly 300 attendees gathered with anticipation to hear the state of the construction industry in 2019, as well as the top projects and players and future outlook in each market sector presented by Rebekah Morris, BEX President & Founder; Rachel Pratt, Vice President of Operations; and Roger Alvarez, Market Researcher.

All data was taken from the BEX Database, which tracks public and private projects around the state with valuations of at least $5M.

Morris began the presentation by giving attendees an overview of the overall market, starting with statewide population growth. From 2004-2006 rates all exceeded 3 percent. During the low times of 2009-2010, growth was less than 0.5 percent, but has since recovered to more than 1.5 percent for 2018-2019, making Arizona one of the most high-growth areas when put in the overall national economy, Morris stated.

Arizona recorded a total of 2.961M jobs in 2019, which shows a 10.51 percent gain from the 2007 pre-recession peak of 2.679M; however, when looking at construction employment specifically, “we are still 26 percent lower than our peak,” said Morris comparing the 175.7K jobs recorded in 2019 versus the 240.3K jobs recorded in 2006. Though the numbers are climbing back up from 110.8K in 2010.

Total construction activity peaked at $21B in 2006-2007 and dropped to $8.6B in 2010-2011. While construction activity hasn’t come back to pre-recession levels, 2019’s total of $15B shows “we nearly doubled our low point level,” said Morris.

After the higher level market overview, the BEX research team dug deeper into infrastructure, housing and private construction.

Public Infrastructure

VP of Operations, Rachel Pratt dove into public infrastructure, which included K-12 and higher education, public spaces, transportation and parks and utilities.

K-12 and higher education account for $454M and $468M, or 3 percent, of the total market respectively, with top projects being Chandler USD High School No.7 and ASU ISTB 7. The K-12 market is projected to remain heavily bond driven and 2020 should be a big year for bonds since districts are more likely to put out bond measures during election years, Pratt noted. There is also a slight increase in the diversity of the K-12 meaning new players are starting to break through the K-12 wall.

Major universities will continue to grow, and while ASU is dominant in higher education, they are losing ground, but only because of how they shift some projects away from their budget and toward developers.

Public spaces accounts for 3 percent, or $421M of the total market, with the top project being the City Hall at Goodyear Civic Square at Estrella Falls.

“Year-over-year change for public spaces from 2019 to 2020 is up 56 percent,” said Pratt. Because of the economic growth, more people are moving to Arizona and purchasing property and more people are building homes which means more tax revenue for the cities and more money for Capital Improvement Projects.

Transportation and parks accounts for $1.6B or 11 percent of the total market with the top project being the South Central Light Rail. Investment in transportation is seen as an economic development investment and the market is diversifying as new players get more projects. BEX predicts an increase of construction dollars in 2020 as projects that were on hold are now moving forward.

Utilities accounts for 6 percent or $885M of the total market with the top project being the SunZia Southwest Transmission Project. There is an increased focus on water availability for the high growth the state is experiencing and, while tax revenue is high, cities are hesitant to spend the money on utilities. Spending is predicted to remain steady at about $750M per year with a 65 percent jump in 2022.

Housing

After infrastructure, BEX Market Researcher, Roger Alvarez took the stage to discuss the housing market.

Single-family residential permits are climbing their way up at a healthy pace from 7.37K in 2010 to around 24K in 2019. Pre-recession peak numbers in 2004 were 55.79K, according to Alvarez.

The multifamily market, composed of apartments and condos, student housing, senior housing and single-family for rent, accounted for 17 percent, or $2.609B of the total market in 2019 with the top project of the year being Gentry on the Green, Scottsdale. The annual volume of multifamily permits has reached +/- 7,800 in the past few years, which is a healthy increase from 2009-2013, but is still short of the pre-recession numbers which were between 6K and 12K per year.

While most of the housing market still consists of “luxury” product, there is a growing demand for affordable, attainable and workforce housing. The housing market will continue to grow as economic development continues to grow and there is a lot of opportunity for design and construction firms to break into this sector.

Private

Morris once again took the stage to dive into the final “big chunk” of the market, private construction. Private construction is composed of healthcare, industrial, office and retail and hospitality.

Healthcare, which comprised hospitals, medical office buildings and assisted living facilities, accounts for $1.194B, or 9 percent of the total market, with the top projects being the MIHS Roosevelt Campus Redevelopment, the Banner UMC MOB and the Manor Village at Desert Ridge Assisted Living Facility.

The large institutional healthcare systems are dominant in the space, there’s not a lot of players in healthcare. Because owners’ resources are constrained, they are trying to get more creative in delivering projects. A way to do that is to lump projects together to gain more traction in the market, according to Morris.

Industrial took the top spot away from multifamily this year, accounting for 22 percent, or $3.035B, of the total market, with top project being the Intel Chandler facility. As Morris stated, the industrial market is the “darling of the traditional CRE sectors, representing approximately triple the volume of Office & Retail combined.” Speculative development is the most popular, representing about 75 to 80 percent of the industrial market.

There is a lot of industrial (data center) activity around East Mesa and Goodyear. With the construction of the Loop 202 and Loop 303, there is even more opportunity for industrial development. According to Morris, the only likely thing to slow it down is rising construction costs and land prices.

Office and retail accounts for $963M, or 6.5 percent of the total market with the top projects being The Union at Riverview in Mesa and the Papago Plaza Redevelopment in Scottsdale. Retail is changing from the big box stores and malls to ground-level buildouts, entertainment destinations and live-work-play projects.

Hospitality is comprised of hotels/resorts/casinos and sports and entertainment and accounts for 9 percent of the total market with the top projects being the Ritz Carlton Resort & Hotel and the Downtown Phoenix Sports Arena Renovation project. The hospitality sector is very diverse and has many entry points for firms looking to break in. There will be continued investment in upgrading and renovating existing properties but building new large sports and entertainment projects are “inconsistent at best,” said Morris.

All-in-all the outlook of the overall construction market was positive. Population and job growth are strong, vacancy rates are declining while rental rates are decreasing and there is no fear of overbuilding in any areas.

Join BEX on May 5^th for the 2020 Private Development Summit and hear from owners and industry leaders in the private sector for construction in Arizona. To learn more or to register, go to http://bex-events.com/summit-2/