By Frances Johnson
It is hard to find any part of life that hasn’t been changed by the coronavirus pandemic — from the way we work, to the way we shop, to the way we see (or don’t see) our family and friends.
But one thing that didn’t seem much phased by COVID-19? The construction industry in Utah.
While Utah-based construction firms saw some projects get delayed or disappear altogether early in the pandemic, most are now enjoying a workflow that is back to pre-pandemic levels — and better, in some cases.
“We feel extremely fortunate that our offices are located where they are, because we have seen nothing but growth,” said Randy Steed, the outgoing president of Steed Construction. Steed Construction does business in 16 states, with main offices in Utah, Idaho and Texas. “We were nervous at the beginning of the year (2020) because everyone was panicking, but it turned out to be a decent year for us.”
A high demand for residential construction is one of the main engines driving Utah’s ongoing construction boom. Already experiencing a housing shortage before the pandemic, an influx of new residents from California and other neighboring states during the pandemic has only intensified the need for more housing in Utah, especially along the Wasatch Front.
According to Building Salt Lake, a local website focused on Utah real estate development, there are 1,873 residential units currently under construction in a few-block radius of downtown Salt Lake City alone.
“Developers are feeling good about Utah and we see a lot of projects going forward,” said Dennis Cigana, executive vice president of preconstruction and business development at Jacobsen Construction. “People felt strongly that we would come out of this pandemic and that Utah would continue to be a place people wanted to be.”
But while construction firms in Utah are enjoying a happy ending to the pandemic story — and the industry is much stronger here than in many nearby regions — that success didn’t come without a few bumps.
Steed Construction, for example, had several large hospitality, restaurant and school construction projects put on hold at the beginning of 2020. The company was preparing for layoffs, Steed said, when a Paycheck Protection Program (PPP) loan allowed it to make payroll and keep everyone employed.
Projects in other sectors, including manufacturing facilities, warehouse distribution locations and car washes, kept them going until their delayed projects came back online.
“By the time that PPP money ran out, we started seeing a pickup in the industry and it’s been picking up ever since,” Steed said. “All in all, we had growth last year over 2019 and we started this year with more backlog than the year before.”
The pandemic experience at Jacobsen Construction was very similar, Cigana said. Deemed an essential business by the governor, Jacobsen was able to keep active construction sites open — with new pandemic safety protocols in place. But Jacobsen also had several projects in the pre-construction phase get put on hold at the beginning of 2020, including a mountain resort project being financed by a New York-based developer, as well as an office tower in downtown Salt Lake City and a large housing project.
“We didn’t know what to expect,” Cigana said, “but we knew things were starting to slow down. We realized, OK, we are going to see a shift in the marketplace.”
In order to prepare for what might be coming, Jacobsen leadership took a look at the company as a whole and restructured some overhead costs based on their new revenue projections. But a total industry crash never came.
So, what made the difference?
One factor, Cigana said, was the strength of Utah’s construction industry — and economy as a whole —going into the pandemic. Developers were confident there would be a demand for their projects once the pandemic was over, especially multi-family residential developments.
“When you look at the other regions nearby and around the country, I think Utah fared really well in terms of the pandemic,” Cigana said.
Another factor that supported ongoing growth was the state’s response to the pandemic itself, said Steed. Utah had a proportional response, he said, with a realistic approach to lockdowns and business closures.
That made it easier for many companies — including construction firms — to keep doing business here, he said. The state’s response to the pandemic also made Utah an attractive destination for people trying to get away from more restrictive responses in nearby states like California, Washington and Oregon. That influx of new residents — both temporary and permanent — increased the already high demand for new construction in Utah, especially in the residential sector.
“We are seeing both Idaho and Utah benefiting from people moving here,” Steed said, “partly because they are better places to live and also because people are now working from home so they can really live anywhere.”
That new residential demand ultimately trickles down to demand for other kinds of new construction, including office and retail space, and that demand is coming back stronger than ever.
“Just in the last few months, people are starting to see the light at the end of the tunnel and the phone hasn’t stopped ringing,” Steed said. “We are expecting major growth.”
Jacobsen Construction is also seeing many of their stalled projects coming back online, especially government and public-sector projects. They are expecting steady growth through 2021 and 2022, at least, Cigana said. But that growth is already coming with some pandemic-induced growing pains.
Global supply chains were majorly impacted by the coronavirus pandemic (remember when there was no toilet paper?), and that includes construction materials. Many suppliers — anticipating a construction slowdown — let their inventories deplete, Cigana said.
Other suppliers, such as lumber mills in the Pacific Northwest, had to shut down entirely under their states’ pandemic restrictions, Steed said. That means many necessary materials are unavailable, and the ones you can find are more expensive than ever. There was a time within the past year when the price of lumber for a project Steed Construction had underway downtown was going up by $50,000 a day.
“There’s almost no material that hasn’t gone up and I’m not sure it’s going to come down in the near future,” Steed said. “There’s a lot of pent-up demand.”
Jacobsen Construction has experienced similar shortages and price hikes.
“We’ve been tracking it and making our projects aware of it and trying to be proactive. It’s different from when we used to be able to just know the supply chain was going to deliver what we needed,” Cigana said. “The supply chain has really impacted our material costs. Making sure our designs stay in budget will be crucial moving forward.”
These higher prices don’t just make it hard for construction firms and their subcontractors to stay on budget, Steed said. They also make it harder for consumers to afford new construction— an especially worrying trend in the residential market where Utah home prices were soaring even before the pandemic.
“It’s just killing the public,” Steed said.
It could also be setting up Utah’s construction industry for a dip — or crash.
“So what I am worried about now is that this is unsustainable,” Steed said. “The industry will come roaring back and then there will be a dip. It’s a bubble.”
Companies can protect themselves by avoiding debt and watching the trends so they can be proactive instead of reactive. For example, Steed said, if you see residential demand start to dwindle, demand for commercial construction will not be far behind.
Adapting to new trends — for example, changes in the way offices are designed as a result of the pandemic — can also help construction firms future-proof their business and profits, Cigana said.
And even if there is a dip in the construction industry in the future, Steed added, Utah will most likely be protected from the worst of it then, just like it has been now.
“You are seeing construction growth at every level,” Steed said. “We are feeling pretty bullish.”