After a strong 2019, contractors across the Southwest are looking toward the second half of 2020 with guarded optimism.
The top 50 firms on ENR Southwest’s annual Top Contractors ranking reported a combined $13.12 billion in regional revenue for 2019 across the three-state region of Arizona, Nevada and New Mexico. That was nearly $2 billion more than the $11.13 billion reported by the top 50 firms for 2018.
The Phoenix office of Hensel Phelps topped the ranking for the second year in a row, posting regional revenue of $1.4 billion for 2019, an increase of $551 million over 2018. The firm has projects under construction throughout the Southwest region, and its “key vertical markets saw steady growth through 2019 and heading into 2020 prior to COVID-19,” says Steve Grauer, vice president and district manager of Hensel Phelps’ Western district.
However, since the pandemic began, “conversations regarding capital-improvement projects have decreased and many have been put on hold until the market rebounds and the level of certainty stabilizes,” he says.
But with the stock market appearing to be on the mend, with a strong rally in early June, and “unemployment numbers [showing] tremendous declines, falling to 13% with the addition of 2.5 million jobs [and] with hourly wages rising, we are optimistic for the balance of 2020 and properly preparing for the potential ripple effects heading into 2021 and 2022,” Grauer says.
Arizona’s commercial construction market “was extremely vibrant, and expectations were that it would continue for two to three years” before the pandemic occurred, says Tom Dunn, president of the Arizona Builders Alliance.
The state’s budget was expected to have a significant surplus, and the main issue at the time was where to spend all the extra dollars, while commercial construction’s main issue was lack of skilled labor, he says.
“We worked diligently to define construction as an essential business, and that has assisted in keeping the market strong,” Dunn adds. For Arizona, expectations for the remainder of 2020 are to be near pre-COVID-19 forecasts, he says.
“However, the state surplus went from an exceptional surplus to a loss overnight. Significant decreases in municipalities’ tax revenues and the shutting down of the economy have increased unemployment and uncertainty,” Dunn says. “Many private and public projects have been delayed. Many in our industry are optimistic that once the uncertainty of the pandemic passes, the state economy will bounce back strongly, as the economic policies are in place for the state to compete in the new economy.”
Las Vegas Hit Hard
Before the pandemic, Las Vegas was looking at more than $10 billion worth of work underway or getting ready to start, says Sean Stewart, CEO of the Nevada Contractors Association.
“During the pandemic, construction in Nevada was deemed essential, which allowed several projects to continue,” he says. “However, there were projects such as the Madison Square Garden Sphere that halted construction.”
Stewart says that according to Todd Leitel, director of operations for MJ Dean Construction, the MSG shutdown led to the layoffs of more than 1,500 construction workers.
“Other projects scheduled to start, such as The Drew, have been delayed indefinitely,” he adds.
But the outlook for Las Vegas is encouraging, given that work has continued on projects such as Allegiant Stadium and the Las Vegas Convention Center, Stewart says.
“Other projects put on hold during the pandemic are also announcing plans to start up again. It is anticipated that the $1.3-billion MSG Sphere will restart construction operations next month,” he adds.
New Mexico was also fortunate with construction being deemed an essential service, so most contractors, subcontractors and service providers saw little impact on the work they had been performing, says Mike Beck, executive director of the Associated Contractors of New Mexico.
“We were advised by the New Mexico Dept. of Transportation early on that they intended to continue letting projects with no changes in the timeframe they had been scheduled for in the foreseeable future, and so far they’ve been able to accomplish that,” he says.
The big concern for New Mexico relates to the drastic downturn in oil and gas production in southeastern New Mexico that began in early March and the impact that will have on the state budget, Beck says.
“Governor Lujan Grisham called for a special legislative session beginning June 18 to address the projected FY21 budget shortfall resulting from this decrease in oil and gas activity and where funding to fill anticipated voids will come from,” he says. “At this point we’re just not sure what the final impact might be on infrastructure funding that New Mexico’s construction industry had been anticipating to be available for the next several years, but we’re staying on top of that situation.”