What happens when you invite some very busy, leading building contractors to sit down over lunch to discuss the commercial real estate opportunities they see for 2017 in Dallas-Fort Worth? They all show up!
I had the pleasure of meeting with Brandon Barber of Barber Specialties Inc.; Bill King of The Brandt Cos. LLC; Dave Osburn of Osburn Contractors Inc.; and Bill Penz of RPM xConstruction LLC. Most of these firms are North Texas-focused except Brandt, which has a sizable presence throughout the state. The good news? All of these executives are very upbeat about 2017 and the great opportunities they see for the region.
Revenues in 2016 averaged 15 to 20 percent increases across the board. Every firm anticipates another revenue-breaking year, with most indicating that the challenge for 2017 will be to vet new construction projects based on their own infrastructure support and skilled labor to meet budgets and deadlines.
North Texas will continue to enjoy robust opportunities, from Brandt’s perspective. According to King, San Antonio and Austin are in a growth mode with plenty of opportunities, but Houston will continue to be more cyclical.
For 2017, Osburn expects that opportunities will be abundant—and whatever the firm wants them to be. The challenge is to take the work they want while carefully balancing the workforce with existing and new projects. Although Osburn Contractors has a large workforce, one of Osburn’s chief concerns continues to be the labor market.
Indeed, labor is the linchpin for 2017. Firms are seeking project managers and supervisors where the biggest shortages are occurring. With higher wages and greater job opportunities, some of the best people are being recruited away to other companies and competitors, creating a difficult hurdle for many.
For example, what happens to those who were hired five years ago whose wages are now less than your new hires? One answer might be to give everyone a raise, but that impacts existing projects. Across-the-board increases have to be assessed in relation to the jobs on the books, which could impact turnover if those increases aren’t forthcoming.
On a positive note, applicants are coming from other cities, including many from markets such as California, and they are not all heading to Toyota or Liberty Mutual. In many cases moving to Texas from an East or West Coast location may mean taking a haircut on salary, but the cost of living in North Texas is still a bargain for many.
On another topic, commodities costs are at a record high, according to Osburn. He cites concrete as one example, which he foresees rising another 10 percent in 2017.
Barber, meantime, has a backlog of drywall projects that were bid based on a pricing schedule before labor and material costs began to escalate. In 2016, drywall experienced a number of increases– two 15 percent increases and one 10 percent increase. Although the firm’s growth has been steady and in double digits, labor and materials costs are a challenge and will continue to be in 2017.
One notable trend relates to rising transportation costs, according to Penz of RPM xConstruction, due to increased traffic on the roads. Penz says that outside trucking costs have increased because of congestion. When trucks sit on the road the rates per mile increase and, if it takes more time to get materials to a job site, that lost time can impact a project’s manpower hours, too. With a workforce of more than 1,000, Penz believes that managing these deliverables and related transportation costs will be a priority in 2017.
On the other hand, access to equipment will not be a problem, according to Penz. Unlike a decade ago, when companies like Caterpillar were straining to meet global demand for construction equipment, especially from China, worldwide demand has dropped. As a result, equipment is more readily available to U.S. companies. The bigger issue, says Penz, will be finding the right people to operate that equipment today.
Firm leaders agree that the industry is rapidly embracing new technologies in the field. Project supervisors are using hand-held tablets and getting farther away from paper drawings. Companies are embracing different software platforms to run their business operations, including biometric clocking in of their employees using thumbprints or retinal scans to record where and when a person showed up on the job site. Tracking construction budgets, expenses, timelines. and scheduling will continue to become more sophisticated and streamlined.
The general consensus is that construction activity in both the retail and healthcare sectors will continue to thrive in 2017. With sizable housing developments well under way throughout the North Texas region, more “dirt will fly” as developers seek suitable infill sites to address these new communities. As new housing developments fill up, the need for retail and medical components to service this population emerges. One caveat is the continued availability of “good dirt” (a.k.a. well-priced land) for developers; the supply of such land seems to be shrinking in the region.
Healthcare should have a healthy increase in 2017. Although the market experienced a setback with the collapse of Forest Park Medical Center—all that built space had to be absorbed—the market should begin to accelerate again, especially for micro-hospitals and one-stop clinics.
One disconcerting trend, according to these executives, are the numerous companies moving into the DFW area to set up shop. Many are ill-equipped and unprepared to do the work. King of Brandt described four different jobs where his firm had to bail out general contractors who’d hired the wrong subcontractors for the projects.
King expects to see more of this problem in 2017, especially in the Legacy area in Plano and Frisco. Unqualified vendors are out there, according to Osburn, who favors stronger regulations, especially for startups. He believes that many vendors don’t know what they are doing and, in some cases, when that type of firm goes out of business, two or more companies often emerge from the collapse.
While most companies are open to looking nationally for talent, much discussion centered around the cost of recruiting that talent and the internal culture challenges related to growth, as loyal long-term employees adjust to the influx of new leadership and new managers.
For 2017 and beyond, a big priority is being placed on the importance of training people. In conversations with millennials, everyone at the table agreed, it’s clear that millennials want defined career paths. Developing a career plan with specific professional goals weighs heavily on the minds of future leadership. Taking training to that next level and establishing strong peer relationships and networks through industry associations will be keys to continued success in the New Year.
Charles R. Myers is the CEO of MYCON General Contractors in McKinney and co-chairs the Industrial and Office Local Product Council for the North Texas District Council of the Urban Land Institute.