Construction Industry Expected to Grow in 2015

5 Areas to Watch in Metro Milwaukee

By Bart Adams, CPA, Partner

Construction Industry Expected to Grow in 2015. Copyright 2015, Sikich LLP. 1

After several tough, tough years, the Milwaukee construction industry is poised for continued growth in 2015. A recent American Institute of Architects survey reported that architects in the Midwest experienced five months of solid billing growth between May 2014 and September 2014, which is considered a 9-12 month leading indicator for actual construction.

With manufacturing activity on the rise, a shift in residential choices among millennials, some material shortages and a growing construction labor force shortage, the industry’s landscape will look quite different than it did in 2014.

Based on my conversations with Milwaukee area firms across multiple subsectors, including residential, office, infrastructure and industrial, here are five areas to watch this year:

1. Demand increases for quality industrial spaceWhile industrial vacancy rates remain low, there is pent-up demand for quality industrial space. Along with increases in manufacturing activity, we’re seeing more new industrial speculative buildings, industrial parks and add-ons in the works, including HellermannTyton’s 102,000-square-foot addition to its 92,000-square-foot facility in Milwaukee, Uline’s 1,000,000-square-foot warehouse and 200,000-square-foot office in Pleasant Prairie, and the construction of a 100,000-square-foot facility in Waukesha to support the continued growth of companies like EmbedTek. Industrial construction shows no sign of stopping in 2015.

2. Rise in multi-family housingThe face of the housing market continues to change as millennials along with empty-nesters move more frequently and demand residential flexibility. In the case of millennials, they often live at their parents’ house for a longer period of time until their student loans become more manageable. As a result, multi-family housing should increase briefly in 2015 and then begin to settle down as we approach the end of the year. Single-family home construction will continue to show improvement in 2015 from the depths of the recession but will likely not see pre-recession boom-time construction levels in the near term.

3. Infrastructure remains steadyThe Zoo Interchange project, an ongoing infrastructure renovation project that will drastically improve critical Milwaukee roadways, is valued at $1.7 billion and currently represents the largest project in the state’s history. The core reconstruction will begin in 2015 and continue until 2017,

Construction Industry Expected to Grow in 2015. Copyright 2015, Sikich LLP.

with the last piece of the project on the north leg scheduled to be completed in 2018. Other significant infrastructure construction includes the continuation of the I-94 North-South project over the next seven years and the upcoming I-94 East-West Corridor project that’s valued at approximately $1 billion. Overall, we will see consistent activity in infrastructure construction, but no major growth or decline.

4. Office space projects continue at a healthy rateMultiple office space construction projects broke ground in the summer of 2014. The 1.1 million-square-foot Northwestern Mutual Tower will be completed in 2017, permanently changing the Milwaukee skyline. The new building should help create 1,900 new jobs by 2030, and Northwestern Mutual plans to invest roughly $450 million for both the design and construction.

The Irgens 833 East Michigan project will result in a 17-story office building with 350,000-square-feet of Class A space that will house tenants such as Godfrey & Kahn, Cresa Milwaukee, Colliers International/Wisconsin and Jason Inc. Occupants should move in by February 2016. Across the board, demand for office space will continue at a steady rate.

5. Shortage of skilled workers poses problemsAs construction increases, the need for skilled workers increases as well. According to a study by the Associated General Contractors of America, the Milwaukee, Waukesha and West Allis areas saw an increase of approximately 8 percent employment—2,100 construction jobs—between September 2013 and September 2014. However, many local construction firms found it challenging to fill positions. As high schools focus less on applied technical skills and students pursue higher-paying careers outside of the trades, executives in the industry worry about replacing the aging skilled workforce and identifying who will lead the industry forward.

Construction in the Metro Milwaukee area will grow in 2015, but finding qualified talent to complete a variety of specialized projects will become increasingly difficult. As new projects kick off, firms will be more selective in their bidding processes since they need to identify how to complete existing projects with a rapidly diminishing talent pool. This could potentially reduce the number of bidders.

The ongoing infrastructure and office space projects combined with the increase in multi-family housing and industrial construction will create numerous opportunities for business expansion and job growth in the Milwaukee area. To capitalize on this, it’s clear the greatest challenge lies in training the next generation of construction workers. This plays a critical role in accelerating growth in Milwaukee and building a strong, vibrant community for decades to come.

Bart Adams, CPA 262.754.9400 badams@sikich.com