Next Building Boom Remains Elusive For Southwest Firms
While the Southwest construction market isn’t projected to suffer through another downturn, the results of ENR Southwest’s Specialty Contractors Survey and comments from several leaders of specialty contracting firms suggest that talk of a return to boom times any time soon is premature and unwarranted.
“The economy, especially on the private side, is not as bullish as some have made it out to be. The jobs that are being discussed are not developing fast enough,” says Victor Fuchs, president of Helix Electric in Las Vegas.
In the current survey, covering revenue earned in 2014, only three of the top 10 firms reported an increase over 2013. In contrast, last year’s survey revealed that eight of the top 10 firms reported higher revenue.
Specialty Contractor of the Year Rosendin Electric, Tempe, Ariz., is one of the firms that grew, and grew big: posting revenue of $319 million, up from $129 million in calendar-year 2013 (see profile on p. 13).
A total of 64 firms participated this year, up from 57 last year. Revenue in 2014 for the firms participating was $2.17 billion, up marginally from $2.14 billion in 2013. Wilson Electric, Tempe, Ariz., saw a slight increase, to $83.51 from 82.2 million, which is indicative of the current health of the construction market in the Southwest region: Gains are possible, but not massive nor abundant.
Commenting on the general health of the Southwest specialty-construction sector, Wes McClure, president of Wilson Electric, says, “Last year was pretty tough here in Arizona and New Mexico.”
Activity Slow, Margins Low
McClure says the decline in regional revenue is primarily due to a lack of opportunity, notably a lack of high-quality jobs, which makes landing contracts for each and every potential project a vital lifeline.
“The niche that we are in, larger construction and commercial, there were very scarce opportunities. Design-build and others we had been involved in over the years were almost nonexistent,” McClure says, explaining that they were able to perform industrial and mining jobs in 2014 for which they historically had not competed.
Several specialty contracting firms also say that the handful of projects that are moving to the work phase are increasingly competitive. This heightened competition has also led to reduced revenue and margins.
The lack of work “causes a huge desperation demand on the subcontractors in the area,” Fuchs says.
The general future prognosis for the region, how-ever, is that activity is still on track to develop positive churn over the next year.
“Government spending remains steady, which is always favorable,” says Mark G. Henderson, CEO at JB Henderson Construction Co.
Geographic and Sector Growth
A number of firms have also looked to new markets as a salve for slow growth. Wilson Electric and KSK Electric of Las Vegas, for example, joined forces in an effort to expand their geographic footprint.
“The joining of two major firms with strengths that are highly complementary will enable us to provide enhanced experience and expertise, increased service offerings and add an operational location in Las Vegas,” says Todd Klimas, COO at Wilson Electric.
Beyond merging with other firms, the more mainstream solution is to expand geographically by following those project types that fit within a firm’s specialty.
“We have had to extend our geographic boundaries to serve an inconsistent semiconductor market. The semiconductor market is in a constant state of change and has a reputation for huge up and down swings,” Henderson says. “This encourages regular marketing and business development efforts to expand our presence in other sectors including health care and general building.”