By Aldo Svaldi | asvaldi@denverpost.com | The Denver Post
PUBLISHED: April 2, 2019 at 6:00 am | UPDATED: April 2, 2019 at 10:50 am
Spending could drop 8 percent this year vs. last, firm predicts
Year after year this decade, construction cranes and work crews in metro Denver have gotten only busier. But activity may finally take a breather, according to a forecast from a leading cost estimation firm.
“Denver has been one the hottest markets across the country since 2013 and 2014,” said Dan Pomfrett, a regional director with Cumming. “We expect this (slowdown) to be more of a market catching up with itself than a recession.”
Cumming predicts that construction spending in metro Denver will drop about 8 percent this year, led by an 11.5 percent decline in residential construction activity. In dollar terms, construction spending in metro Denver will drop from a high of $20.6 billion last year to $18.95 billion this year.
Residential construction, which includes apartments and single-family homes, will drop from $13.1 billion to $11.6 billion, making it the largest contributor to this year’s decline. Spending on schools and health care facilities will continue to rise this year, while spending on commercial buildings and manufacturing plant construction will flatten out. Infrastructure spending will drop 3 percent.
The predicted decline isn’t huge, but the reversal will be noticeable. For the past four years, construction spending has risen an average of 12.7 percent a year in metro Denver, while home and apartment construction has risen an impressive 17.6 percent a year on average, including a 28.8 percent gain in 2016, according to Cumming.
After construction spending drops this year, Cumming forecasts it will rebound a meager 2.5 percent in 2020 and remain below 2018 levels at least through 2021 and likely longer. That’s because the company’s model, which relies on 15 to 20 criteria, predicts a U.S. recession in 2022 or 2023 that will slow building activity nationwide.
“I don’t believe that it in the least,” countered Michael Gifford, president and CEO of the Associated General Contractors of Colorado. “We aren’t seeing a slowdown. We aren’t seeing a decrease in construction employment.”
A forecast in December from the Associated General Contractors of America called for another increase in the volume of work in Colorado in 2019, despite labor shortages.
Regarding residential, Gifford said the metro region should have added 215,000 rooftops the past decade, but only added 157,000. The deficit is a big one that will take years to backfill.
So why the forecast for a slowdown in metro Denver? Pomfrett said rising living costs are making the region less attractive, adding that the most expensive markets like San Francisco and Los Angeles are seeing even sharper decreases in construction activity this year.
“The more expensive states and locations are where we are seeing the labor force leave the market,” he said. Less migration translates into less construction activity.