Construction firms optimistic despite labor, cost woes

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By Brian Johnson

BridgeTower Media Newswires

Construction businesses in Minnesota are slightly more optimistic than they were at this time last year, despite ongoing concerns about workforce availability and rising costs, according to a new survey from the Associated General Contractors of Minnesota.

At a high level, 34% of businesses responding to the 2024-2025 Minnesota Construction Industry Assessment anticipate improving market conditions in the coming year, up from 23% in the December 2023 survey. Roughly half of respondents expect things to stay about the same, while 18% foresee declining conditions.

More than 165 Minnesota construction companies — including general contractors, design and engineering firms and specialty contractors — responded to the survey, an annual snapshot of the industry’s mood when it comes to a range of market conditions.

Working in the building, highway, utility infrastructure and heavy industry segments, surveyed contractors represent a cross-section of the industry. The companies range in size from less than $20 million in annual volume sales to more than $125 million.

Project funding and advances in technology are driving optimism, according to the survey, which was released Dec. 12. Inflation, construction labor costs and the availability of skilled construction labor are among the biggest reasons for handwringing.

In the survey’s comments section, respondents cited a range of worries, including the high cost of construction equipment, government mandates, difficult-to-achieve workforce goals, and the dearth of young people pursing construction careers.

Mental health also emerged as a concern. As one anonymous respondent wrote, “Mental health has become front and center in our industry. Employers, project owners and unions have to address the causes of addiction and suicide in the industry.”

Even so, fueled largely by project funding and technology advances, the assessment is “pretty positive overall,” Tim Worke, CEO of AGC-Minnesota, said in an interview.

“It is a perception survey, so it’s not using data that comes from sources and then is interpreted,” Worke said. “It is perception of people in the industry, a look forward into 2025 and then asking things like, ‘What do they see as positives? What are some drags?’”

Ben Anderson, director of operations for Shaw-Lundquist Construction, is among those who expects things to get better.

“We saw a number of projects tap the brakes in 2024 due to inflationary pressures in certain products and commodities,” Anderson said in an email. “Many of those projects seem to be re-energized looking at 2025, so we anticipate a stronger year for construction in Minnesota. We have a solid backlog and see attractive opportunities emerging in the first quarter.”

In all, nearly six of 10 respondents identified project funding as a “somewhat” positive (50%) or “very” positive (9%) market condition. Technology changes fared even better, as 79% of firms cited that market condition as “somewhat” (72%) or “very” (7%) positive.

Respondents pointed to alternative energy as the most promising market segment. Specifically, 58% see it as an “expanding” market. Health care (49%), heavy/civil infrastructure (46%) and transportation (45%) round out the top five markets.

Commercial office is the least attractive segment for the next 12 months. Seven of 10 respondents see declining conditions for commercial office, and only 4% view it as an expanding market, while 26% say it will remain constant.

The outlook is more nuanced for commercial & retail (50% declining, 41% constant and 9% expanding), multifamily housing (28% declining, 42% constant and 30% expanding) and senior housing (15% declining, 47% constant and 38% expanding).

One of the surprises, Worke said, is the growing concern about the transportation and infrastructure. Despite increased state and federal spending in those areas, the negative outlook for that segment jumped from about 3% last year to 9% in the current survey.

“That, I think, is due to some challenges in rolling out some of these big investments that the public has put forward,” Worke said.

“At the federal level, the Infrastructure Investment and Jobs Act has been a slow roll out. And now the state has a number of new initiatives that will bring revenue to transportation construction, and they’re slow rolling out. Our members are concerned that it’s a flat market for the next two years or so, but then we hope to see that turn around.”

The AGC assessment is generally consistent with another recent industry survey.

A Federal Reserve Bank of Minneapolis survey, conducted from Oct. 29 to Nov. 18, reveals that businesses have lingering concerns about labor availability, material costs, interest rates and more, but the mood is clearly better compared to a year ago.

Ron Wirtz, the Minneapolis Fed’s regional outreach director, said during an online presentation in early December that the outlook is “more optimistic than I was probably expecting, and certainly the most optimistic we’ve seen in a couple of years.”