Commercial Construction: Optimism Is High

Contractors and equipment distributors are optimistic that local non-residential construction activity will improve this year, according to a recent Wells Fargo survey. Nearly 80% of 522 surveyed contractors across the US said they rented equipment in 2013, and 91.2% said they intend to rent in 2014. (So start shopping your old shovel around on Craigslist.) Rossi Builders prez Craig Rossi tells us rentals are up because construction activity is up; the Bay Area has been robust for a couple years now, he says, and this data means other areas must be coming back, too. 

One quarter (26.1%) said they would increase their purchases of new equipment compared to a year ago, a 5.3 percentage point improvement. Many contractors deferred purchasing new equipment in the recessionary years of 2009 to 2010 and then held off longer based on lack of confidence that the recovery would hold. Cash flow became a challenge during and after the recession, he says, so it was prudent to limp along with the equipment you had than take on additional debt even if that meant higher repair costs. Craig tells us he's doing a building renovation and interior build out at 2430 Mission (above)--converting this old furniture store into a new 6,600 SF Self Help Federal Credit Union.

In addition, Rossi was also just awarded a 24k SF medical office interior renovation for Dignity Health at 2250 Hayes (above). The regulatory issue of greatest interest (69.2%) for the year was related to tax incentives such as Bonus Depreciation and Section 179 deductions. The Highway Funding Bill (60.2%) and the Affordable Care Act (46.6%) were also up there. He agrees the ACA is contributing to future uncertainty with the US construction industry. Rossi's rate hike is projected to be about 40% next year, so he's considering options on how to deal with the increase.