Last month, the New England Real Estate Journal published an article by Rebecca Nolan touting an awakening of growth in the Connecticut region. In her article, Ms. Nolan reminds us that our Yankee perseverance has seen us through prior rough patches, and she notes multiple new construction projects proceeding in the region that signify economic growth in Connecticut.  I am personally familiar with several of the projects Ms. Nolan refers to in her article since I live around the corner from the property in Simsbury where The Hartford’s former building complex will be renovated and revitalized.  Just up the road from there is the new mixed use construction project of approximately 160 apartments, 13 townhomes, and a commercial aspect yet to be finalized.  In addition, I have been watching from my office window with great anticipation the fast paced construction of the new Dunkin Donuts Park for the Yard Goats, Hartford’s new baseball team.  With all of these new projects, I had to look into what is actually going on in the market from a contractor’s perspective.

Dunkin Donuts Park

AGC of America and Sage have put together a 2016 outlook for the Northeast region that provides a contractor’s perspective on the year ahead. In general, this report states that contractors are cautiously optimistic about 2016. One reason for this optimism is that construction spending continues to increase at rates not seen since prior to the economic downturn nearly a decade ago. Contractors in the Northeast have a positive outlook on the hospitality, retail, warehouse, and hospital markets. However, there appears to be diminished optimism for manufacturing and non-educational public projects, such as water, sewer, highway, rail, and power. Construction firms are adding headcount due to a growing demand in both private and public sector construction markets and they continue to invest in technology.  However, there are concerns about the challenges facing the construction market. These challenges include workforce shortages, increased federal and state regulation, increased competition for work, and rising costs.  With these mixed messages, the question being asked for construction in this region is whether the glass is half empty or half full.

While contractors do not appear to be quite as optimistic as they were in 2015, they are positioning themselves for growth in 2016.  Most construction firms reported that they will be adding employees; however, with only modest increases. Very few construction firms stated that they have plans to reduce overall staffing. While many firms are looking to increase head count, they will face some challenges in doing so. These challenges relate to the shortage of qualified workers; experienced workers are getting more difficult to find as they phase into retirement. Construction firms are finding that they need to increase pay, benefits, and bonuses to attract and retain qualified workers. In addition, this labor shortage is requiring contractors to invest in training and development programs to produce skilled laborers and make up for the shortfall in the general pool.  Furthermore, construction firms are concerned about the safety implications and costs that inexperienced labor brings to a project site.

This increase in labor costs also has contractors concerned about competing for work.  Contractors need to be able to pass these increased costs on to project owners, but they are concerned that doing so will reduce their competitive advantage in bidding projects.  In addition, contractors are concerned about the costs of complying with increased federal regulatory burdens aimed at protecting workers and the environment.

While contractors are expecting 2016 to be a positive year with many market segments expanding or remaining stable, this outlook is tempered by expected increases in labor costs, increased regulatory burdens, and safety concerns attributable to inexperienced labor.  However, in spite of these concerns, projects are moving forward, the industry is still expected to grow, and contractors are generally optimistic.  It’s good to be looking at the glass half full again.