At a glance, the Boulder County construction industry has weathered the COVID-19 pandemic with minor dips in revenue and job retention. But with project pipelines drying up and supply-chain disruptions, financial impacts could be a slow burn.
Construction has held up well compared with the rest of the market, said Brian Lewandowski, executive director of the Business Research Division at the Leeds School of Business at the University of Colorado Boulder.
CU Leeds data through September, based on research by McGraw-Hill Construction Dodge Research and Analytics, found Colorado’s value added for construction is flat. Both September of 2019 and 2020 are $13.5 billion. For Boulder County, there’s an 11.8% decrease from last year’s $851 million.
Lewandowski also looked at the Current Employment Statistics (CES) from the Bureau of Labor Statistics. The survey included construction for Boulder County under “Mining, Logging, and Construction,” but Lewandowski said extraction sectors aren’t as robust as construction. Employment is barely down from 6,100 employees in August 2019 to 5,900 during the same time this year.
A major factor in construction remaining steady is the industry was considered essential throughout every pandemic-related mandate by the state, Lewandowski said. More or less, it continued without missing a beat.
Lewandowski added that ongoing contracts supported the construction sector amidst the economic downturn caused by the pandemic.
“A lot of projects were already underway. So we don’t see projects necessarily end halfway through construction, so they’re still going to finish those major projects. So that had something to do with it from the beginning,” he said.
Pressure from the pandemic isn’t dispersed equally among different construction sectors. Residential contracting value increased 6% through September compared with the 2019 year-to-date, according to the data CU Leeds tracked from McGraw-Hill. Non-residential is down slightly by 3%. Nonbuilding, or infrastructure, decreased by 17.6%.
Lewandowski predicts the need for housing for a growing population will continue driving real estate developments. But there is uncertainty for how nonbuilding and commercial work will be affected.
He added that because current data reflects ongoing projects, if the industry has taken a hit from the pandemic the numbers won’t be reflective until the end of the year or beginning of 2021.
“I guess you can look at this and say, maybe it’s starting to show up in the data. But I think that the next few months will be pretty telling for the outlook for the construction industry,” Lewandowski said.
Construction sectors
Though the data might not show it yet, Boulder-based PG Arnold Construction LLC has been hurt by the economic downturn. The company is a Class A licensed commercial general contractor, mostly serving Boulder and Denver in both business and residential spaces.
PG Arnold has grown quickly since its founding in 2014. The first year closed on $1 million revenue, said Paul Arnold, president and founder. Revenue doubled the next year, and PG Arnold has continued its hockey-stick growth until recently.
Arnold said that throughout his career in the field, he has noticed the construction market ebbs and flows. He said upturns typically last seven to 10 years.
Since 2012, after the end of the Great Recession from 2007 to 2009, construction steadily was growing. There were 4,042 extraction and construction jobs in Boulder County in 2011, the lowest after the Great Recession, according to CES data. There were 5,967 people employed in 2019, the highest employment since.
“We were really on borrowed time as far as a downturn of some sort,” Arnold said.
PG Arnold was set to double its revenue this year based on its first quarter. The company was at its peak headcount, with almost 30 employees. It had to lay off some employees and currently has 16 staff members.
Arnold said the commercial building part of the business was hit. Restaurant renovations normally add a great deal to PG Arnold’s project pipeline, but with the impact of COVID-19 on the industry, there aren’t many new projects in that sector. PG Arnold’s portfolio includes Bigsby’s Folly Craft Winery and Restaurant in Boulder, a 14,000-square-foot renovation of commercial space of 207 Canyon, a luxury residential development Mark on Pearl and Improper City in Denver.
Revenues are down about 50%, Arnold said. The firm lost nine projects over the course of a month, decreasing its $20 million backlog to $3 million in April.
Arnold said PG Arnold is trying to find residential project leads, as he thinks there’s more opportunity than commercial. He said there’s still opportunity out there; it’s just a matter of finding projects and competing with other contractors.
“The grass is greener on the other residential side of the industry, so not everyone is experiencing it,” he said.
For the time, PG Arnold is leaning on ongoing contracts. One is a $2.5 million construction contract with the town of Superior for the 1500 Coalton Road renovation project in the former Land Rover dealership property. According to Superior’s website, the town plans to create a mixed-use space and community center.
There are about as many residential building permits this year as there were in 2019. CU Leeds research based on data from the U.S. Census Bureau and the Colorado Business Economic Outlook Committee, found that the state permits in the year-to-date in August were up by 4.4% compared with the same period in 2019. Colorado’s majority of building type both years is in single-family. For Boulder County residential permits were down by 4.6%, with the majority of permits for multi-family.
Running Rabbit Home Building Inc., a Lafayette-based home residential construction company, mostly does remodels and add-ons. Owner Adam Starek said occasionally there’s a build-up project.
During the Shelter-in-Place phase of Colorado’s COVID-19 response from March through early May, business slowed down. Starek said he hustled for deck jobs, exterior paneling and other work he could do on the outside homes.
But in June, he said, inquiries shot up. He said in the summer he “gave out enough estimates for a year or two worth of work.”
“In May and June, I started getting a lot of calls, maybe even more than last year. Seems like a lot, with a lot of people stuck at home, they were getting ideas for remodels or patios and decks and outside outdoor spaces,” Starek said.
However, most were for smaller projects, not extended remodels. He also added some of the new leads weren’t reliable or new to the remodeling process. Normally, when approaching Running Rabbit, clients have already finalized a budget, design and secured a building permit, Starek said.
Leads are starting to calm down and are reflective of a normal year, he said. He added the normal seasonality of the industry, where it slows in the winter, and the upcoming presidential election could be a factor.
On the nonbuilding side, construction stayed steady, Tony Milo, executive director of the Colorado Contractors Association, said in a written statement. The CCA has more than 300 members in the infrastructure contracting field who “perform the vast majority of public works infrastructure projects across Colorado.”
The CCA lobbied to keep construction an essential business under Gov. Jared Polis’ Stay-at-Home mandate early into the pandemic, Milo said.
“While 2020 has been a pretty good year for construction, 2021 will be challenging from a funding standpoint for publicly funded infrastructure projects. The state of Colorado and most of our local governments will see a reduction in tax revenue due to the COVID-19 restrictions and this will impact infrastructure funding in 2021,” Milo said.
In August, the value added by non-building construction was down a little more than 1% from August 2019, according to the data CU Leeds tracked from McGraw-Hill. In September, that value decreased and is now 17.6%.
Supplies
Arnold said PG Arnold sources materials from different places, depending on the project and what the architect or client wants rather than depending on a set group of suppliers. Since the pandemic began, he said the company has had issues with shipping numbers getting mixed up or supplies taking a while to arrive, especially if sourced internationally.
He’s been waiting on a light fixture for 12 weeks, Arnold said, and the earliest estimate for its arrival is in December.
“It puts us in a tough position. And actually the owners and the clients have been very understanding of the whole thing but it frustrates me to have to use the exact same excuse, time and time again, and just blame everything on COVID, but it’s the truth,” Arnold said.
Starek said he hasn’t experienced too many issues with acquiring supplies recently, but between May and June, he had a handful of “headaches.”
“One client, we spent a long time picking a certain kind of composite decking that was two-sided, one of the few options that were available and it was out of stock,” he said. “Finally came into stock and ordered it and then it just never came.”
Starek said the supplier was unsure if they’d ever get the specific composite decking back into inventory.
Bowman Construction Supply Inc., a building materials supplier with locations in Colorado Springs, Denver and Longmont, hasn’t had a major slowing in business, said general manager Lee Seaman. But he said he’s seeing projects postponed.
“Where we have seen slowing is [in] some of the estimating projects that are more targeted toward commercial construction with projects being delayed and pushed out, so just not being released as rapidly as in the past,” he said.
Some contractor clients have pushed construction projects off until next year’s first quarter, Seaman said.
Bowman stocks and supplies to contractors in Colorado and Wyoming. Seaman said sometimes, materials the company orders have a delay between two weeks and in rarer cases two months, but it hasn’t impacted business. He thinks the couple months construction slowed down — in March and April — created a back-up in the system.
Seaman said he’s seen an increase in steel products and increasing costs for polymers have driven some plastic product prices up. He added it’s more difficult to get material through ports and finding trucks to ship supplies.
Though there are disruptions with the supply chain, and less work in nonbuilding and commercial projects, the construction industry has proved resilient.
“Beyond just saying that there’s so much uncertainty, so many unknowns when we’re looking at the economy for 2021, that will have an impact on construction and real estate,” Lewandowski said. “Aside from that caveat, I think that the construction industry so far has held up remarkably well, compared to what we would perhaps normally see during a recession.”
