Although specialty contractors across much of the West Coast are continuing to see steady work, company leaders agree that the markets they serve have seen a slowdown since 2023. But as specialty firms continue to work through backlogs in 2024, they are looking ahead to 2025 with optimism.

The top 10 firms on ENR California’s Top Specialty Contractors list reported total revenue of $4.88 billion for 2023, down 4% over the same group’s 2022 revenue. However, the firms experienced a smaller decline than in 2022, when the top 10 specialty contractors in the region recorded a decline of 13% compared with 2021 revenue.

The top 10 firms on ENR Northwest’s Top Specialty Contractors list also reported a small decrease in revenue over the previous year. The group’s combined total for 2023 was $1.49 billion, down 3.5% over the same group’s combined 2022 revenue, in contrast to the significant growth of 19% reported in 2022.

On average, the top 10 specialty contractors in each ENR region reported an increase of 13.5% in regional revenue during 2023. In the Western regions (California, Northwest, Mountain States and Southwest), the average increase was 2.96%. California and Northwest were the only two ENR regions where the top 10 specialty contractors reported a decrease in revenue, and while some of the change can be explained by slightly fewer firms responding, the slower growth reported across ENR’s Western regions as a whole suggests that conditions are more challenging for specialty contractors on the West Coast.

Chart by ENR

Some sectors have been hit harder by market shifts than others. Over the past year, “commercial/office was virtually dead for us. The only big concrete job that we had in commercial/office was for a job that we won in 2022—it was a $100-million office building down in Sunnyvale that took us through the third quarter of 2024,” says Ron Yen, president and managing partner at San Francisco-based structural concrete contractor Pacific Structures Inc. “Since then, there’s been very little activity in new ground-up commercial/office. Then in terms of the residential market, what I’ve seen is there’s some selective market rate stuff, but mostly on the outskirts and then quite a bit of affordable housing work.”

Tremendous cost pressures on projects are playing a large role in the private sector and the multifamily market in particular, adds Jason Pengel, executive vice president at San Diego-based Helix Electric.

“The cost of money is too high and projects do not pencil. Companies and individuals are also very cautious right now. People are not spending money freely, and there has been a sense of insecurity permeating the markets. This has caused many projects to go on hold,” Pengel says. “Many of these projects are now shovel ready with design complete and workforce ready to build these great buildings. I am very confident though that with the contentious presidential election now behind us, many of these projects will begin to break free.”

Firm leaders agree that commodity pricing has continued to weigh across the region over the past two years, and they hold out hope that price certainty will help more projects take off headed into the new year. But another factor is labor—organized labor costs are going up faster than the market will bear, Yen points out.

Chart by ENR

“It seems organized labor is more willing to talk about concessions, so that I’m optimistic about, but it’s still tough. For a while, the price tolerance that our contracting clients and their developer partners had were going down. Meanwhile, my costs were going up because of labor and because of commodities,” he says. “And so I think for us, the commodity and the labor side right now is starting to cooperate a little bit more and hopefully that’ll unlock projects.”

Yen believes there will likely be some renegotiated deals once the market reaches a tipping point.

As 2025 approaches, company leaders hope to see the solid mix of public and private work. There are some positives on the horizon that could make that a reality.

In November, California voters okayed Proposition 2, Authorizing Bonds for Public Schools and Community College Facilities, a $10-billion education state bond that will give the state the ability to borrow up to that amount to fix “dilapidated public education campuses.”

“So we know that there’ll be work in the educational market. There’s been a lot of emphasis put on affordable housing in California and in the state of Washington, so keep an eye on that,” Yen says. “There’s a lot of pent-up demand for housing in general on the West Coast. We’re going through a period where not a lot of market rate residential is going to get built, but housing demand isn’t going away and we’re not adding more supply. I think the infrastructure work is going to be coming back strong too, especially airport work.”

Pengel hopes to see cost and lead times stabilize for both equipment and commodities, and he also believes that projects that have been on hold for a couple years will come back around and new construction starts will be up in the new year.