Photo by Danny Lau on Unsplash.
Arizona construction: Here’s how the next normal looks
Over the past few years, construction businesses in Arizona have been busy breaking ground and cutting ribbons. But that storm of activity — along with national economic trends — has ginned up headwinds. AZRE sat down with Arizona construction industry leaders who are all members of the Arizona Builders Alliance to get a temperature check on the market.
Discussing issues and trends in the construction industry are:
• Jamie Olding, owner of Building Excellence
• Jared Kredit, president and CEO of K2 Electric
• Katie Perry, executive vice president of Haydon Building Corp
• Mike Goodwin, operations manager for Climatec
• Ed White, president of TDIndustries
The following responses have been edited for length and clarity.
AZRE: Much ink has been spilt about the effects of inflation, labor shortages and supply chain issues on the Arizona construction industry. Are those still the prevailing headwinds for the industry?
Mike Goodwin: Those are definitely still factors. From our standpoint, inflation has slowed the private sector. As far as some of the newer projects that are coming down the pipe, Arizona is a little more insulated. We still have companies moving here that need buildings built, so there’s still opportunities out there.
The labor shortage isn’t as bad as it was, but the pool is still not deep. So, you’re either home growing talent or you’re in trouble.
As we go into the supply chain, Climatec is unique because we deal with a lot more electronics type of components. We can get most things in two to three weeks, but there are a few specialty items that can be problematic. For a long time, variable frequency drives were 20 to 40 weeks out, but those have improved.
Katie Perry: The good news is just like Mike said — companies are relocating here. We have a lot of work. And I would say the supply chain has leveled out somewhat. We’re not seeing the challenges that we were seeing before.
Jamie Olding: Down here in Tucson, with residential slowing down some, we’ve actually been able to attract some good talent back into our mix, so that part of it worked out for us. But the labor shortage is an issue that we’re going to continue to deal with. The Arizona Builders Alliance (ABA) is trying to take a strong stance with our workforce development to continue to figure out how to attract young talent to our industry.
I agree that the supply chain is getting better. Still, you see some items that are hard to get, but usually you can look at a couple of options and find something that you can get.
Jared Kredit: These issues are all still talked about. Like everyone said, I think labor will be the conversation for the next couple of decades. Labor force participation in general is a problem.
The challenge for us as a subcontractor from a competition standpoint is not that things are inflating — copper is down 20%-30% over the last several months. But is it going to stay there or spike back up? Do we carry out our bids with today’s pricing, or bump back because we’ve seen so much volatility?
What we’re seeing is that switchgear is becoming the No. 1 supply chain problem. That’s creating roadblocks for folks like Katie when they’re trying to get a project started, so we’re now in the hot seat.
AZRE:What effects have multi-billion-dollar projects such as the Taiwan Semiconductor Manufacturing Company (TSMC) facility in North Phoenix had on the Arizona construction market?
KP: When we were on concrete allocations, I didn’t really love TSMC. In the beginning, it was creating challenges because they were attempting to hire away our management and labor staff. But I think as they’ve gone on, it’s not really an attractive project because there are so many hours that need to be worked. We’ve seen people go in that direction and then come back.
But I really do appreciate the opportunity for suppliers that have migrated here that has created opportunity for us in the industrial market. So that’s been really great.
Long term, there are huge advantages. Having somebody like TSMC choose Phoenix for this type of project is really great. In the short run, it’s challenging, and it’s not helpful that Intel’s expansion is going on at the same time.
JK: I would echo a lot of what Katie said. We’re not out there getting revenue and margin on the job, so it’s been less than favorable for us. But from a macro standpoint, I think in the long haul it is good. There’s going to be a lot of ancillary work that comes with that.
The short-term challenge for us is the dichotomy between Tucson’s and Phoenix’s labor markets. Those labor markets used to be alike from a wage standpoint, and that’s not the case anymore. We had to implement similar pay incentives to mitigate some losses. We didn’t lose a ton of folks, but we lost a few.
If you’re not familiar with most of those projects — and it’s far more than just TSMC — these global companies will build their project, and they will get the labor they need at whatever cost. They’ll pay a market wage, and then they’ll put an adder on top of it.
We’ve had to compete with that to make it less alluring for both our existing team and when we’re recruiting to make our operation the place they want to come. Like Katie said, those are harsh environments, so we sell the culture we provide, but I’d be lying if I didn’t say that it’s been costly and disruptive beyond that project.
Ed White: Increasing pay is, I think, always a plus. This industry had historically been a bit tamped down, pay wise, so anything that helps that is good. But we were just talking about inflation, right? If TSMC is offering $10 more an hour to attract craft workers, other companies have to do the same thing. As we do that, our cost model goes up, and we have to pass that on to our customers if we can. When that happens, jobs start getting paused. So TSMC is really a double-edged sword — it’s a good influx for the economy but it does mess things up.
AZRE: Is the Arizona construction industry doing a good job of attracting and retaining talent, on both the trade and professional side?
EW: This question has been around for as long as I’ve been in the industry. The key word there is retain talent, right? If you put a lot of focus on retention, there are fewer people you have to replace. You’ve got to have a culture where you’re taking care of people, you’re providing growth and hopefully a vehicle that they can see to retirement. I think a lot of the same things apply to attracting talent.
But the day when we used to have generational craftworkers is dying. It used to be very common. My dad was in the industry, but none of my kids are. We’ve got to find a way to continue to attract even at an earlier level than high school. And we have to stop advertising the industry with cool buildings, because the generation today needs something different, including a culture of success for minorities. It can’t just be words on paper.
MG: We’re heavily involved in workforce development. We work with the [career and technical education] programs down here, along with Pima JTED and SkillsUSA. We’re actively involved with Pima Community College, which is building out their construction program, so a large group of us are on the advisory board for that. That engagement with educational partners pays off.
JK: Training and development are big for us, especially for younger folks, but it matters mid-career too. It’s not just, “We’re going to put you through an apprenticeship if you’re in your 20s and set you up for a career.” It’s also for someone who’s 45 and has been in the industry, worked here, there and everywhere, but doesn’t feel like they’ve gotten good leadership training or personal organizational skills. We want people to feel like they’re progressing in their career no matter where they’re at.
AZRE: Any Arizona construction reflections or expectations you’d like to share for the rest of 2023?
KP: I feel incredibly optimistic about 2023. Arizona construction is feast or famine, so when you have a backlog through ‘23, ‘24 and ‘25, it allows us to look internally and work on our training development program.
But your backlog is only as good as when it starts, so you have to be prepared to fill in some of those gaps. It’s very hard to plan project teams when job starts push, because inevitably they all fall right on top of each other. Then you have to figure out how to manage that, because your reputation is based on how you manage your work. Optimism, pessimism — it’s all there.
I prefer to see the glass half full, so I still see lots of opportunity for all of us in ‘23. It’s been the first time as a smaller general contractor that we can be selective about the clients we work with and the partners who see us as such, not just a commodity.
EW: I’m very sincere about this: everybody has to take care of their people. Not just financially, but safety wise too. You have to check all the boxes.
JO: We’ve gotten a great backlog through this year and a few things going into next. As a smaller company with smaller projects, there’s times where we’re six months from unemployment, but we’re full now.
With the ABA, what we advocate for is that Arizona is Arizona, and we need to keep it that way. We’ve got to watch as we grow and change. There’s a lot of people moving here, and there’s a reason they’re leaving those other places. It has to be done right. Tucson has a lot to offer, so does Phoenix. We’re growing, and that’s why we need to keep these positions and attract more people. So right now, I see things that are positive, but there’s still a lot of uncertainty.