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AGC economist sees continued growth in construction

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Construction activity is growing, although unevenly, but the industry will be slightly better in 2014 than it was last year, said Ken Simonson, Associated General Contractors of America’s chief economist.

Simonson, who was already in town for an economists’ convention, spoke about national and local construction industry trends to about 50 contractors, suppliers and public agency officials Wednesday at the AGC San Diego chapter headquarters.

“In 2014, I expect private residential to cool off, but here in San Diego County that might be the exception,” Simonson said.

Nationally, private residential construction jumped 18 percent from December 2012 to December 2013, according to a U.S. Census Bureau construction spending report.

Simonson said he sees this trend continuing for the multifamily housing market in San Diego County, since there are long-range master-planned communities under construction in San Marcos, Mira Mesa, Mission Valley and Chula Vista.

Across the country, multifamily housing construction grew 27 percent over the past 12 months, according to the U.S. Census Bureau. Simonson said this sector will continue to do well this year, at about 14 to 18 percent growth.

“The multifamily upturn should last into late 2014,” he said. “Single-family housing is rising for now, but with tight credit, a fear of locking [into current interest rates] and demographic shifts may limit increases.”

Another positive area for San Diego County construction will be transportation. Simonson said there will be opportunities for contractors and suppliers in highways, trolley improvements and the new bus rapid-transit systems.

“I see a 2 to 5 percent increase in transportation work this year compared to last,” Simonson said.

In addition, he said, the public works sector looks healthier in San Diego than the country as a whole.

“There is a level of cooperation and willingness to work together here in San Diego with public and private partnership that you don’t see in other parts of the country,” he said.

Trends holding down construction growth this year will be less available government funding for schools; continued consumer spending online, which is leading to fewer retail buildings but more warehouse infrastructure; and a shrinking office market because of increased shared space and telecommuting, Simonson said.

“Construction spending, on a seasonally adjusted annual rate, is still three-quarters of the way back from where we were before the recession,” Simonson said, predicting a 6 to 10 percent increase in construction spending over the next three years.

When it comes to materials costs, Simonson said, it will be rare to see spikes across the board, with a potential for a 1 to 3 percent increase this year. He said he sees labor costs rising 2.5 to 5 percent in 2014.

Moving forward, Simonson said, the Panama Canal expansion, expected to be completed in 2015, will have a positive effect on the local construction market. He said port cities such as San Diego will need to invest in dredging, piers, cranes, warehouses and rail facilities for the added cargo that will come into the region.

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