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Colorado Springs Denver

Local, national perspectives: Economic shifts and their impacts

Construction in Colorado faces the same economic shifts that many other states have experienced – but other unique issues have added more strain to the market.

For the past two years, construction within Colorado has echoed the same story many other states have experienced. Low unemployment, record-breaking cost escalation, overloaded trade partners and supply chain delays. In the past three months, we’ve started to see some relief in a few of these areas, but other issues unique to Colorado have added strain to the market.

On the upside, escalation in Denver has been stabilizing as we reported a 1.32% increase in first-quarter 2023 and 1.25% in fourth-quarter 2022. The three previous quarters ranged between 2.86% and 3.53%. While this is a sign of a cooling economy, these corrections were needed to stunt the sharp material price increases we’ve been dealing with postpandemic.

With many projects going on hold or failing to secure funding, our trade partners are scrambling to fill backlogs that were at capacity for the past two years. Where contractors previously struggled to secure three trade partner bids per scope, we recently pursued a project in early June that received seven mechanical and six electrical bids.

We’re also seeing an uptick in interest in public projects, which typically happens when the overall economy starts to shrink. We recently pursued a parking garage at a public university where 16 contractors turned in proposals. A year ago, that type of project would have only garnered about eight proposals.

Unemployment.

While our trade partners aren’t as overloaded with projects as they have been the past two years, securing skilled labor continues to cause issues. According to a Colorado Department of Labor and Employment survey, the state’s seasonally adjusted unemployment rate stayed at 2.8% in March and April. Colorado’s unemployment rate has been below 3% for a year, which reflects prepandemic levels.1

Housing.

The cost and availability of housing are two pain points where Colorado is negatively trending outside of national norms. The labor struggles and low unemployment rates we just discussed are also complicated by these two factors. The median income for Colorado is roughly $84,000 per year, which means the median family can afford somewhere between $300,000 and $350,000 as a housing purchase price. However, the median sales price for a home in Colorado is north of $500,000. To add further statistical perspective, Colorado’s cost of living is 5% more expensive than the national average, but home prices are 21% more expensive than the national average.2

These factors drive lower income workers to reside outside of metropolitan areas, resulting in long commutes for an already lower-wage job, or into multifamily housing. The development of multifamily housing has been somewhat unpredictable in recent years. We noticed pricing requests for multifamily seem to come in waves, where we provided pricing options to many more potential projects in 2022 than we have in 2023. In 2022, we worked on seven active projects or viable pursuits. For 2023, we have responded to only one viable pursuit to date.

Colorado’s Legislature recently made the news when $400 million of federal pandemic relief money was earmarked to address our lack of affordable housing. Through grants and loans, it is estimated that about 15,000 affordable homes will be available with this money. Conversely, Colorado averages building about 40,000 homes (of all kinds) annually, and the estimate for homes needed to level supply and demand sits at 325,000.3

Legislation.

In recent years, counties, cities and the state of Colorado have enacted several new environmental mandates that impact construction. Central to adopting these standards are Environmental Product Declarations. The materials we procure and use to build must have product specific EPDs, and the material’s maximum acceptable global warming potential must be less than the prescribed limits. The Buy Clean Colorado Act is at the state level for all public projects exceeding $500,000. This law requires the Office of the State Architect establish a maximum GWP limit for each category of eligible materials: asphalt and asphalt mixtures, cement and concrete mixtures, glass, post-tension steel, reinforcing steel, structural steel and wood structural elements.

“These materials are the focus for Buy Clean Colorado due to their high carbon emissions impact and volume use in public projects and since reducing the impact of these materials will provide the greatest reduction of greenhouse gas emissions during the construction of state public projects. Through design optimization and responsible selection of materials, reduction of embodied carbon emissions from building materials can be accomplished,” stated the OSA.4

These mandates will have downstream impacts on construction costs. For example, some areas require the electrification of all equipment and appliances. This can result in higher costs and long lead times just because we have limited suppliers of this equipment. Another example includes efforts to lower embodied carbon in concrete. A limited number of suppliers exist that can produce the proper mix, resulting in higher costs. While Colorado is one of the more stringent states with regard to environmental legislation, we are working on strategies nationwide to offer construction solutions that balance these environmental mandates with the associated additional costs.

 

  • 1) cdle.colorado.gov
  • 2) rentcafe.com
  • 3) cpr.org
  • 4) osa.colorado.gov
Local, national perspectives: Economic shifts and their impacts
Colorado Real Estate Journal
Read Now
James Anderson
Vice President
Preconstruction Services Director
Will Roberson
Economist

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