Colorado-Real-Estate-Journal_319902

Page 32 - January 4-18, 2023 www.crej.com Construction, Design & Engineering W ith 2022 coming to a close, it is necessary to reflect on adversities and accom- plishments that have arisen along the way. When entering into a new year, it is important to out- line a new and improved system that will only result in greater success from the year prior. The hurdles that we had to jump over this year are the same hurdles others in the construction indus- try have faced as well. n Labor shortages. Labor shortages have incrementally improved since the pandemic began, however, the improve- ment has been slow. Looking back on this year, we’ve seen more “green” workers in the field than ever before. The desperate need for labor to keep up with the high demand of construction projects has led to less skilled labor joining the workforce. Unfortunately, these workers tend to require more training, hand-holding and job-site super- vision, which has put a strain on more seasoned construction workers and those in managing positions. From a subcontrac- tor’s point of view, work was steady, and often there was more work than staffing allowed. As a general con- tractor, Global Construction had to get requests for proposals to subcon- tractors as quickly as possible, before they got too busy. Keep- ing track of which vendors were available and when was a new challenge we had to deal with when bidding projects and creat- ing construction timelines. At the beginning of the year, we were hopeful that labor shortage woes would begin to ease by the end of the year, but it appears there is still no end in sight. n Material delays. When it comes to material delays, we are still seeing nationwide sup- ply chain issues across multiple industries. This includes kits, appliances and glass, to name a few. We have seen three-month delays on the aluminum inserts that hold large glass panes together. At times, commercial metal doors have a 60- to 90-day wait time. Hardware for doors is a year out depending on the manufacturer. Some clients have had to change unit specs because we have had a 12-month time frame on some hardware deliver- ies. Due to this, we are ordering materials ASAP, often six to eight weeks in advance on all our projects. Unfortunately, this may not be enough time in some cases and has created challenges in keeping up with initial project timelines. Additionally, rising prices paired with material delays has made it nearly impossible to create an accurate bid as many products are billed on shipment or delivery, not upon order. An eight-week delay could put your project into the next quarter, and material prices could see a 6% to 12% hike. n What’s working? With labor shortages and material delays being the leading adversities this year, we have found solutions that have helped aid in our suc- cess. One of the biggest steps we have taken is ordering ahead of time. In some cases, it has actually been beneficial to order in bulk and store materials until they are needed. Things like out- lets, drawer pulls, and hinges, which we use on most projects, along with some building mate- rials can be stored until needed. We have also taken the initiative to do the research to find suitable replacements that can be accept- ed by designers and architects if need be on similar products that are more readily available. Doing our due diligence on this has helped us hit project deadlines from the bid stage to the final project due date. When it comes to project man- agement, we have provided more supervision to help train and assess the efficiencies of crews. Clear communication and expectations on progress and quality are key factors in work- ing together in unison. Assess- ing the progress on a day-to-day basis helps prevent getting stuck or falling behind. We have even taken measures of going out of our home region to find and hire traveling crews. A great example of this was when we had an Arizona crew come to Colorado and work on our Arkansas Place Apartments. We have had other projects this year where we prac- ticed the same method and had successful results. Internally, we noticed a trend of heavy value-add clients begin- ning to fade away, and long-term hold clients started to take a fore- front. There has not been as much money to be made with interest rates rising and money becom- ing harder to get for acquisition groups. In turn, returns on invest- ment have dropped compared to previous years (and will likely continue to decrease as we head further into a recession.) The workload did not slow down, but simply shifted as there is still a need to improve properties. s Erik@KapellaGroup.com Reflect and grow: A look back at 2022 construction industry Erik Good Senior project director, Kapella Group M ortenson recently released our Q3 Con- struction Cost Index and, happily, there are some encouraging signs to report: While nonresidential construction costs continued to increase over the last quarter, they have dramatically slowed in their pace across markets. (We’ll take any good news we can get in this regard.) This leveling off of mate- rials costs has not yet caught up with the decrease in fuel costs, but it is a positive sign for 2023 and one the industry was not broadly anticipating. Now, the less encouraging news: The focus has shifted from commodity-driven price increases towards an escalation of the tight- ening in the labor market. Labor difficulties are not new for those in the industry. We have seen and felt the consequences of the wave of retirements during the pandemic, compounded by the gap of work- ers entering the industry. The real- ity is that we need hundreds of thousands more workers to meet demand in the next year alone. The cost of materials is impor- tant, and the slowing of price increas- es for these goods is a good sign. Beyond that, the smart- est thing any of us in the industry can do right now is focus our energies on developing, training and keeping top talent. n Raw materials costs. First, let’s dig into what the Index is telling us about materials. The softening prices for raw materials and petroleum-based products are expected to continue to decrease and improve the overall forecast for project costs by mid to late 2023. We still recommend early procurement of materials and complex project components such as electrical switchgear and HVAC related products. These compo- nents are experiencing unpredict- able and unreliable durations after orders are placed with manufac- turers. While counterintuitive to our typical design and engineering process for building systems, we are laterally making system design choices based on the most read- ily available components. We con- tinually source in-stock products such as fans, heat pumps, and switchgear for our customers who cannot afford to wait or rely on lead times of up to 50 weeks. After Q2’s Cost Index Report, I dug into some of the strategies for further optimizing materials selec- tion and project sequencing based on the volatile building costs. You can check that out here. n Focus shifts toward labor. While we see the labor stress in the market eventually burning off in the latter part of ’23 thereby pro- viding more availability in back- logs and reduced labor premiums in construction cost forecasts, the industry is broadly facing a con- tinued pinch that we are trying to proactively address on our end. By 2026, approximately one- third of the industry is planning on retiring. We have identified three areas of growth to improve the retention and recruitment of the next generation of craft work- ers. The first step is widening the pool and establishing a supportive and inclusive work environment. The ongoing lack of diversity in the industry reveals an untapped market of new workers. Under- standing the many opportuni- ties for a rewarding and lucrative career in this industry is essential to bringing new people in. And with an actionable DEI plan, firms can create a more appealing envi- ronment for team members. From there, it’s crucial that we are investing in the potential of our team members. Through training and development, companies can directly influence the ultimate per- formance and retention of their craft team members. A recent sur- vey found that the lack of skilled craft made up the largest barrier to growth for more than half of U.S. contractors. That investment in training is ultimately far less than the cost of losing someone who feels disengaged and having to find someone new. We've found that our investments in sponsored training and mentorship yields better project outcomes as well as a stronger and more satisfied workforce. When construction is viewed as a desirable, challenging Construction costs in Q3: Positive signs, challenges persist Brian Holland Director of business development, Mortenson Denver The Mortenson Cost Index is showing a single quarter increase of 0.8% nationally and 2% in Denver. Over the last 12 months, costs increased 9.6% nationally and 10.4% in Denver. Bureau of Labor Statistics Building construction employment in the Denver metro region reached 19,100 in September 2022. This is 6.5% higher (600 jobs) compared to September 2021. Worker shortages are likely to persist into 2023. Prices for commodity-based materials are beginning to level off, but high shipping costs, product lead times and material shortages are an ongoing challenge. Please see Mortenson, Page 44