While the headwinds facing the West Coast construction industry have tapered off considerably, the wider economic challenges remain.

Last year California contractors saw a rebound from a sluggish 2021, while firms in the Pacific Northwest held steady. Still, optimism about the future is strong.

“The local industry is solid, and contractors are optimistic,” says Eddie Sprecco, CEO, AGC San Diego. “The public market is still very good, though we are starting to see private work slow slightly.”

In the California region (which also includes Hawaii) the average revenue for ENR’s 2022 Top Contractors reached $566.3 million, a 9% increase over the prior year. Concord, Calif.-based Swinerton retained its No. 1 ranking in the California region, with $2.8 billion in regional revenue.

In ENR’s Northwest region (Washington, Oregon and Alaska) the top contractors’ average revenue dropped 2.5% to $352.2 million from last year. Skanska USA retained the top spot, posting $1.6 billion in revenue for the region.

California’s health sector projects, like Clune Construction’s Edwards Lifesciences Headquarters in Irvine, promise growth.
Photo courtesy Clune Construction

On the positive side, the surge in state and federal funding over the past two years has resulted in more public work in the pipeline, giving contractors more choices on where to bid. Private work is being driven by strong West Coast demand for institutional and commercial projects and housing work, which is growing despite higher interest rates and other pressures.

Clouds on the Horizon

“That said, contractors are making sure their backlog is diversified, preparing for a substantial slowdown in the economy that would hit private work first and gradually increase competition for public works,” Sprecco says.

Material prices continue to increase but not as steeply, making it easier for contractors and owners to plan projects, he explains. More formidable is the skilled labor shortage for trades, estimators and project managers as well as the spectre of increasing regulations from various government policies.

Randy Starbird, president of Clune Construction’s Western region, agrees. “Overall, 2022 was a successful year for us. This is especially true when you look at performance indicators such as safety, employee engagement, client satisfaction and our ability to maintain our margins in a year of economic uncertainty,” he says. In 2022, the firm reported $306.77 million in revenue for California and Hawaii, compared with the $245.5 million in 2021, jumping from No. 54 to No. 41 on this year’s Top Contractors list.

Some clients found it challenging to plan office build-outs with many employees still working remotely, and increased interest rates and uncertainty about the future caused others to be more conservative in their approach to the workplace.

“This resulted in projects being put on hold with shifted start dates, projects canceled or reduced in budget,” Starbird says.

The contractor’s completed projects in 2022 included a 355,000-sq-ft mixed-use campus with four buildings for a confidential streaming client in Los Angeles and the 125,000-sq-ft Edwards Lifesciences Headquarters project in Irvine, Calif., which featured open workstations, private offices, collaboration areas, a four-story green wall and an atrium.

Clune broke ground earlier this year on the Delta Premium Lounge at Los Angeles International Airport.

HITT Contracting has fared well across the West Coast. From its regional headquarters in Seattle, the company posted $531.35 million for 2022 in Northwest revenue, up from $197.82 million. It jumped from No. 20 to No. 9 on the list. On California’s list, the company moved up to No. 42 with $303.89 million in revenue, from number 62 with last year’s $157.19 million. ENR ranked HITT No. 18 on the Top 400 Contractors nationwide list in 2023.

The Falls Church, Va.-based company has experienced its largest growth in health care, life sciences, industrial, and mission critical data center work. In the Seattle market, HITT has grown considerably in the tenant interiors space, says Ryan Wagner, vice president for the Pacific Northwest and Seattle office leader.

Among its completed 2022 projects was a $5.8-million contract for a confidential technology client. HITT’s team completed this full-floor build-out of office space with interconnecting stairs between the three tenant floors. One set was encased in a two-hour rated glass enclosure because of fire code. “Upgrading the existing steel for the new assembly space loads required extensive coordination and partition of their existing space to provide a work area for our team,” he explains.

Also completed last year was the $2.2-million Crossover Health project in Seattle, a multifunctional clinic build-out that offers a lab, mental health care, physical therapy, primary care and chiropractic care. The HITT team installed the latest virus-mitigating HVAC technology and vaccine storage in the outpatient health care and physical therapy clinic.

The contractor’s 2023 project starts include the $9.1-million CBRE WP360 tenant improvement on the 38th and 39th floors of the U.S. Bank Center in downtown Seattle. Embodying the future of workplace flexibility, the two-floor space is designed to support hybrid work and prioritize employee health and wellness. With more than 10 types of workspaces, the office accommodates approximately 300 CBRE team members. HITT is pursuing LEED Cl v4 Silver and Fitwel certifications.

California industrial projects like FCL Builders’ Redlands Commerce Center Building 1 are on an upswing.
Photo courtesy FCL Builders

Labor and Material Challenges

Wagner says that labor shortages and material lead times remain a challenge. Keeping up with a steady increase of new projects, starting backlogged projects and navigating major supply chain issues with materials such as electrical equipment has put great pressure on design teams and builders across the industry.

FCL opened an Irvine office in 2020 and has since been renewing and building relationships with its customers and prospects there, says Robert Cavecche, the company’s regional vice president for the West region. FCL posted $65.67 million in revenue for California and Hawaii in 2022 and is ranked No. 74 for 2023.

“Last year, much like the year before, was a year of large growth. Because of this, our projects last year and this have been larger in scope and size than in previous years,” he says, noting that the company is forecasting “significant growth” in earned revenue for 2023.

In 2022, the contractor completed the Redlands Commerce Center Building 1, a warehouse/distribution center, and the 1800 Almond Avenue in Fontana, a 146,864-sq-ft warehouse/distribution building. This year, FCL started two additional warehouse/distribution centers, the 362,727-sq-ft LogistiCenter at Fairfield and the Distribution Sunset Building in Chowchilla, Cali., a 7,564-sq-ft facility.

Cavecche says that labor availability has been a challenge as has increasing material costs for hybrid roof systems, roofing material, structural steel and miscellaneous metals such as steel piping for fire sprinkler systems. Delivery on items such as switchgear and trusses have also been long.

Flexibility Is Key

Cavecche says he expects growing economic stability will propel opportunities for FCL’s regional growth, increasing procurement of new projects in the fourth quarter of 2023 and into the following year. Next year will also be strong for the company in the West, with its growing demand for build-to-suit projects such as cold storage, food processing, light manufacturing and data centers.

Starbird says Clune Construction is planning a flexible approach in 2024 to ensure performance indicators will continue to be achieved. “We’re focused on increasing diversity in market sectors and geography as well as being flexible in capacities and sharing those availabilities with other parts of the company,” he says.

Recently, Wagner and HITT have seen a shift in client needs regarding tenant interior build-outs with the slowdown of big tech’s return to the office. “Many tenant build-outs are more design-specific to the tenant moving into the space, which drives different timelines and tends to draw out the process,” he says.

With evolving work types, the company is seeing more clients, developers and landlords pivoting from office space to life science laboratory conversions. “While this work is competitive, rather than sourcing different contractors to partner with, clients have trusted our teams for these new types of work due to our long-standing partnerships on other project types,” he says.

Wagner adds that the mission critical technology and data center market also remains strong in central Washington and Oregon with the continued need for increased digital capabilities and data storage.