By Roland Murphy for AZBEX
Every year, this turns out to be one of the hardest columns to write. It’s the classic conundrum of having too many good things to say about too many topics while still balancing priorities.
When you’re a proud data geek reporting on the event that serves as the showcase for a year’s worth of work from your fellow proud data geeks, you want to repeat every nugget, but you also want to not bog down your busy readers with a 14-page data dump or shortchange your client base who paid good money to attend the event in person.
So, with all that in mind…
The BEX 2024 Construction Activity Forecast Event was, once again, held in two sessions a week apart, falling this year on Jan. 24 and 31 and, as we did last year, taking over the Arizona Heritage Center auditorium in Tempe. The two-hour sessions wrapped up the year’s worth of work from the BEX Research staff detailing what happened in the Arizona construction market across the sectors we cover.
For those who have never attended a forecast event, BEX Founder and President Rebekah Morris and key members of the Research team give updates on the three primary market sectors (Public Infrastructure, Housing and Private Development) we track across the 11 main markets (Education [K-12 & Higher Ed.], Public Spaces, Transportation & Parks, Utilities, Single-family, Multifamily, Build-to-Rent, Industrial, Healthcare, Hospitality, and Office & Retail).
The presentations are the forest-level view that results from the thousands of individual projects the team identifies, researches, inputs and updates in the DATABEX project database over the course of a year. While it takes an extraordinary amount of work to distill all those individual projects into comprehensive market overviews, it gives attendees a clear look at what the market was expected to do, what it did, and what the data indicate it will do over the next 12 months.
It also gives the staff the ability to process and really acquire an aggregated understanding of what all those individual projects mean to the Arizona construction and development communities as a comprehensive economic force.
State of the Market
Sticking to the formula that’s proven most useful over time, Morris started her market summary by noting the major economic factors that drive Arizona construction: Population Growth, Employment, and Inflation and Interest Rates.
Arizona’s population growth continues to hold at approximately 1.5%/year. 2022 nudged up to 1.7% as pandemic relocations peaked, while 2023 returned to a more standard 1.56%.
Overall employment continues to rise, reaching a total of 3.189 million jobs in 2023, a more than 19% increase over the previous peak in 2007. At 204,300 jobs, construction employment is still 15% below the prior peak of 240,300 in 2006.
Overall, the data show we were a bit overly optimistic when we gave our predictions for 2023 at last year’s event. We had initially projected 2023 total construction activity to hit $30B. We subsequently revised that downward to $28.8B. When the dust settled, the market ended the year at $26.9B.
There were a few factors that went into tinting our glasses more rose-colored than the clear light of day eventually showed. In particular, Morris said, we thought:
- Industrial lease-ups would continue at their previous rate,
- Multifamily rent increases would overcome higher capital costs and increasing construction costs,
- Public owners were able to absorb cost increases and push projects forward, and
- Perhaps the difficulties and delays in project approvals at the city level might improve.
In terms of sector distribution, the data continue to show that the once standard breakdown of 1/3 Private, 1/3 Public and 1/3 Housing is long gone, perhaps never to return. For 2023, the activity levels came in at 53.7% for Private, 27.1% for Housing and 19.2% for Public.
After recapping the state’s Top 10 capital improvement programs, Morris then dove directly into the project breakdown, covering the Public sector. Given the massive percentages Housing holds in the overall matrix and the disproportionate volume Industrial has in the Private category, those sections this year were presented by their respective dedicated BEXperts: BEX Researchers Andrea Howard and Aaliyah Koelzer. The remaining Private sectors were presented, as usual, by Database Manager Lya Parrish before Morris resumed the stage to summarize the past year and give our predictions for this year and the next two to come.
The Market Sectors
Here is where that need for balance comes into play. While each segment presentation offered extensive insights into 2023 activity levels—including what we thought would happen versus what actually happened and, in the cases where those failed to mesh, why we were off—in the interests of conciseness and benefit to those who bought tickets, we will only list the top performers in each category and our prediction for the year to come.
It should be noted that, due to overlap, not all sectors will contain all five points of information.
Public Spaces
- Top Project: Sky Harbor Terminal 3, North 2 Concourse ($325.8M);
- Top Owner: City of Phoenix;
- Top Design Firm: Arrington Watkins Architects;
- Top GC: McCarthy Building Companies;
- Projected 2024 Construction Volume: $1.19B.
Transportation & Parks
- Top Project: I-10, SR 202L (Santan) to SR 387 ($410M);
- Top Owner: ADOT (Arizona Department of Transportation);
- Top Design Firm: ADOT (in-house design);
- Top GC: Kiewit Corporation;
- Projected 2024 Construction Volume: $2.7B.
Utilities
- Top Project: SunZia SW Transmission Project ($1.5B);
- Top Owner: Pattern Energy;
- Top Design Firm: Burns & McDonnell;
- Top GC: Kiewit Corporation | MMR Constructors, Inc.;
- Projected 2024 Construction Volume: $2.3B.
Multifamily (Apartments/Condos)
- Top Project: The Astra Phoenix ($417M);
- Top Owner: The Empire Group;
- Top Design Firm: Todd & Associates;
- Top GC: Clayco Inc..
Build-to-Rent
- Top Owner: The Empire Group;
- Top Design Firm: Felten Group;
- Top GC: Hancock Builders;
- Projected 2024 Combined Multifamily Construction Volume: $8.8B.
Industrial (Warehouse & Manufacturing)
- Top Project: TSMC ($13B – adjusted for equipment & machinery);
- Top Owner: TSMC;
- Top Design Firm: CTCI;
- Top GC: Okland Construction.
Data Centers
- Top Owner: Prime Data Centers;
- Top Design Firm: Corgan;
- Top GC: Holder Construction;
- Combined Industrial and Data Center Construction Volume: $11.3B.
Healthcare
- Top Project: Banner Scottsdale Medical Center Phase 1 ($400M);
- Top Owner: Banner Health;
- Top Design Firm: SmithGroup;
- Top GC: Okland Construction;
- Projected 2024 Construction Volume: $767M.
Hospitality
- Top Project: VAI Resort ($760M);
- Top Owner: VAI Resort;
- Top Design Firm: JCJ Architecture;
- Top GC: Fisher Industries;
- Projected 2024 Construction Volume: $1.24B.
Office & Retail
- Top Project: Discount Tire Headquarters, Phase 1 ($198M);
- Top Owner: Discount Tire;
- Top Design Firm: Nelsen Partners;
- Top GC: Okland Construction;
- Projected 2024 Construction Volume: $846M.
Conclusions
After an extended and fast-paced data dump covering so many different segments of the Arizona construction market, it’s useful to take a short step back and look at what all those pieces mean overall. After the BEXperts finished their individual presentations, Morris took the stage again to thank the team and offer BEX’s conclusions for the year to come.
In short:
- Local project reviews and approvals will not get faster;
- Local opposition to projects will be an ongoing (and likely increasing) challenge;
- Prices will not come down fast enough, and
- Traditional project capital will not rush back into the market anytime soon.
New This Year!
If you couldn’t attend this year’s Forecast, a White Paper containing all the slides and write-ups of each portion of the presentation will be available for purchase. Keep watching here, at AZBEX.com and your inbox for updates and pricing.