Commercial real estate may be booming in metro Denver, but finding qualified people to handle the work that goes into building the projects scattered throughout the region continues to be a challenge.
The tariffs President Donald Trump has imposed on building materials, combined with a shortage of labor, are adding cost and time to projects, said Sean Hanlon, a partner with the Holland & Hart law firm, who served as moderator for Bisnow’s New Construction & Development event Tuesday. Hanlon cited statistics from Colorado Construction and Design Magazine, which found 73% of Colorado construction firms said finding and hiring labor will continue to be difficult, and a Home Builders Association report that found builders’ costs are up by as much as 30% because of the tariffs.
Other topics covered at the event included the benefits and pitfalls of design-build, the ongoing work at Denver International Airport and Property Assessed Clean Energy, or PACE, financing.
The shortage of labor is particularly challenging because workers are retiring at a greater rate than they are entering the industry, HPM President Ray Hallquist said. But the labor shortage doesn’t stop some subcontractors from bidding on projects they know they can’t deliver on time, he said.
“The AGC [Associated General Contractors] is looking at how to get more people into the crafts,” Hallquist said. “There is a lack of trade schools and classes taught in high schools. We’re not going to solve it with just immigration; we have to solve it with our own workforce.”
Part of the reason younger people don’t choose construction careers is because they have been told it is not a good industry to be part of.
“Culturally, the country has more or less demonized the construction industry, telling generation after generation that this isn’t a good field to go into,” Etkin Johnson partner Dave Klebba said. “It’s incumbent on all of us to try to not do that and to promote the industry and trade schools.”
While the booming oil and gas industry is great for Colorado’s economy, it is making it even tougher for the construction industry to hire and keep workers who can make more money in the oil patch than they can in the building trades.
But Klebba said he is more concerned about the tariffs than he is about the labor shortage. On a $100M project, for example, about half of the cost is materials. If 10% of those materials are impacted by tariffs, that is a $2.5M tariff expense.
“The thing you’ve got to do is absolutely make sure the i’s are dotted and the t’s are crossed all the way through the design,” Klebba said. “You have to have the subcontractors awarded before you break ground. It may delay the project, but it is that important. It may risk market delivery timing, but it’s that important.”
LCP Development founder Jonathan Bush said there is no magic wand that will solve the challenges developers and contractors are facing in the current boom cycle.
“We’re not going to see relief until we see less construction,” Bush said. “The magic wand is when we tap the brakes and things slow a little.”
Bisnow Denver, November 1, 2018 Margaret Jackson