Earl R. Hall, Executive Director – Syracuse Builders Exchange
It is remarkable what a difference a year makes when comparing the state of the construction industry in upstate New York. Without reflecting on the obvious COVID-19 related and governmental mandated challenges from 2020, the state of the regional construction industry is strong.
One of my most accurate barometers has been the architectural billings and regional architectural activities. While such is not the only measure for future construction opportunities, it does tell a compelling story for what to expect in the next 6-18 months. Although my prediction of a 25% decline in the first half of 2021 projects out for bid was slightly high, my prediction of a resurging economic recovery in the second half of 2021 and all of 2022 is proving to be correct.
Architects throughout the northeast United States and upstate New York are reporting a strong recovery, hampered only by a shortage of employees to fill many open positions. The architectural billings from those firms have continued to grow substantially over the past few months, indicative of the strong demand from clients to develop future projects. Much of the new architectural work is being performed in the commercial and industrial sectors. While the northeast may lag the national average a bit, upstate New York is poised to take advantage of the increase in architectural services in the public infrastructure, institutional, commercial, and industrial spaces. Unfortunately, there remains a shortage of qualified architects for hire.
Much of the design work is reported to be associated with building renovations, remodeling, retrofits, and rehabilitation work on existing structures. Specifically, such construction work is more prevalent in the northeast region of the United States than elsewhere in the country. Preserving existing historical buildings and upgrading existing properties remains high on the list of clients seeking architectural services. A local example of this is the collaborative project between the Syracuse City School District and Onondaga County to renovate the former Central Tech High School into a state-of-the-art STEAM school in 2022.
Regionally, many projects remain in the pipeline for construction, with other significant potential projects being strongly considered by elected officials and project owners alike (chip fabrication plant in Clay, NY, and Route 81 project). Project owners who postponed projects in 2020 are now planning those projects for later in 2021 and beyond. The continuation of the Amazon projects in Liverpool and Dewitt, the new Crouse Health Center, Cree’s Carbon Device Manufacturing facility in Marcy and Utica’s new Mohawk Valley Health System hospital are just a few examples of current projects under construction in central New York.
In addition to the construction resurgence, there remains optimism about the infusion of federal stimulus dollars to fund regional governmental initiatives, especially those projects included in the federal infrastructure bill recently approved by President Biden, Senator Majority Leader Charles Schumer, and House Speaker Nancy Pelosi. Such infrastructure projects will include roads, bridges, wastewater treatment facilities and installation of broad band technology to underserved communities throughout New York state.
Although the construction industry is poised to take advantage of future construction projects in upstate New York, many issues employers are experiencing today may continue into late 2021 and beyond. Concerns which may impact construction in the future include:
Inflation – From an economic perspective, inflation is defined as a general increase in prices and decrease in the purchasing value of money. With the influx of trillions of dollars into the United States economy, and thus to communities across the country, inflation remains a huge concern to project owners and construction contractors alike. Over the past 9 years, the average annual inflation rate has been 1.6%. An annual inflation rate of 2.5% could very well add 10% to a project’s total cost.
Increase in Material Costs and Material Shortages – Due to inflation, the decline of purchasing power over time, the significant increase in material costs, and material shortages, project owners will pay more for the cost of material on their projects which may impact their ability to develop a project within budget. While the industry is seeing some signs that the out-of-control price increases in steel, lumber, cement, etc. may have stabilized, industry leaders are wondering what the new normal in prices might look like in late 2021 and 2022, and when the timely availability of material will return.
Supply Chain Issues – The deliver of materials to construction job sites remains a major issue for contractors and project owners today, with no end in sight. Labor shortages impacting all sectors of the industry from contractors, delivery drivers, suppliers, manufacturers, etc. continues to slow the delivery of goods and materials essential for the timely completion of projects. Projects have not been canceled because of supply chain issues, but contractors remain concerned about contractual obligations to general contractors or project owners. Pundits have opined such supply chain issues may see relief later in 2021 once the labor force problem below improves.
Labor – COVID-19, New York State and the federal government have compounded the labor shortage problem that has plagued the upstate New York construction industry for the past few years. New York State’s inability to enforce return to work requirements for those collecting unemployment insurance has significantly impacted the construction, retail, and hospitality industries. The federal government’s continuous $300 unemployment insurance supplement to New York State’s unemployment insurance benefits in many cases incentivizes those who are unemployed to not return to the workforce. In addition, the federal government’s requirement for employers to pay COBRA premiums for those unemployed or ineligible employees only compounds the issues as such also is a disincentive to return to work.
The construction industry in upstate New York has strong momentum, powered by the predicted influx of federal and state dollars funding significant projects for years to come. The funding of projects by various governmental entities, supplemented by the return of private capital into the market, will lead to a significant period of growth for the industry. While headwinds may pose short-term obstacles for contractors and project owners, the future of the upstate New York construction industry remains on an upward trajectory.