News Ticker

Construction Activity in AZ Remains Weak, Sluggish Growth Anticipated for Year

By Eric Jay Toll for The Arizona Builder’s Exchange

Construction sales appear flat through the second quarter with April showing total contracting activity of almost $750M, a 1.5 percent gain over 2011, according to the latest data from the Arizona Department of Revenue. Applying the average 4-month trend of yearly change to the last two months of the Fiscal Year, a 3.25% growth rate is anticipated.

Rebalancing of Construction Activity: Public Money Declines, Private Money Trickles In

Overall activity is tepid at best and internal rebalancing of market sectors continues.  Private money is replacing the stimulus-funded public sector activity of recent years.  Public money is expected to decline for at least the next two years, but it’s important to note that as tax revenues come in above the extremely low expectations set by agencies, public agencies are directing monies to infrastructure maintenance and upgrades (i.e. the City of Phoenix directed $5M of an additional $6M to road repairs).

Residential sectors have sprung to life, led by multi-family developments.  Overall, some 12,500 units are said to be in some stage of planning & development around the Phoenix Metro area.  Multi-family is also showing well in student housing and beginning to come around in the senior housing facilities as well.  In Tucson, three high rise student housing projects all started during May and June, with a fourth scheduled for later this summer.

Single family construction is picking up as the inventory in existing family homes declines; interest is picking up in the new home construction areas.  A shortage of tradesmen is projected to crop up as residential construction picks up and the effects of political and economic forces drive potential talent away from the state.

New Public Works Projects Scarce

Although the amount of public works projects is light, there are opportunities.  The projects listed are moving through the procurement phase, and many have already broken ground.  It is important to note that the project amount shown is not the total project volume, rather the amount budgeted for the current fiscal year.

Private Construction Slow to Return

On the commercial side, any of three office towers in the Phoenix Metro may break ground later this year. A fourth tower is also proposed, but is not likely to start until late 2013.  As AZBEX continues to interview local design firms like Gensler and DAVIS for perspective on the Architecture Billing Index each month, they note the most opportunities in redevelopment, infill, and tenant improvements.

Chandler is expecting construction to start on three office complexes in the Price Corridor with an announcement pending for Intel’s Ocotillo R&D facility. Gilbert is sitting on a major economic development announcement as negotiations with an unnamed business are wrapping up this month.

With high vacancy rates, new retail construction has been slow to recover. Tanger Outlet Mall is targeting a November opening and the Phoenix Premium Outlets will open next year.  The third outlet development in the Phoenix area is on hold indefinitely.

With employment gains in the construction sector—even though the past two months were somewhat flat—it appears the bottom of the market has passed and the construction economy is slowly moving upward.

One continued challenge to private development is financing.  In Friday’s issue, we will publish the first in a two-part series on financing development, based on last week’s Valley Partnership Friday morning breakfast.  It was a very informative event with close to 200 attendees.