February 2021 – Construction Industry News

A look at the top news and happenings shaping the construction industry in California.

Survey Finds Mixed Outlook by California Developers

Commercial real estate developers, owners and investors across California expect a downturn in office and retail development over the next two years but foresee growth for the industrial and multifamily housing market sectors. That is according to a biannual Commercial Real Estate Survey for Winter 2021, conducted jointly by The University of California-Los Angeles Anderson management school (UCLA Anderson) and law firm Allen Matkins.

The Commercial Real Estate Survey and Index are designed to predict future California commercial rental and vacancy rates looking ahead three years, surveying commercial developers and financiers of commercial development in major California geographical markets.

​Among their key findings:

• The end of the latest office building boom is at hand, according to developers in the six regions surveyed – San Francisco, East Bay, Silicon Valley, Los Angeles, Orange County and San Diego. In Northern California, just 12 percent of those surveyed said they planned to start a new project in the coming year, compared to 40 percent who started one or more projects in 2020. Those numbers in Southern California were 17 percent now and 33 percent in 2020.
• Developers were also pessimistic on the retail markets. The survey found that 58 percent of panelists in the Bay Area and 65 percent in Southern California said they will not be developing any new properties in the coming 12 months in the retail sector.
• On the positive side, industrial properties are seeing extremely slow vacancy rates, and the developer sentiment index has moved into the positive zone. Panelists expect demand for industrial space to grow faster than supply, which they expect to spark increase warehouse building over the next three years.
• Multi-family housing development is also expected to rise particularly in Silicon Valley, Orange County and San Diego.

California High Speed Rail Reveals New Draft Plan

The California High-Speed Rail Authority recently released a revised plan for completing a key construction segment in the Central Valley that reflects major impacts from the COVID-19 pandemic.

In the revised plan released on February 9, 2021, the Authority laid out a delayed timeline for completion of the 3 package Central Valley segment, noting they expected substantial completion on the first 22-mile segment (construction package 4, led by California Rail Builders) in about 15 months. The other two construction packages – package 1, led by Tutor-Perini/Zachry/Parsons, and package 2-3, led by Dragados/Flatiron – would be pushed into 2023.

The Authority said that costs have risen by about $330 million over the current budget of $12.4 billion. The plan noted that “because of the risk and uncertainty that lays ahead, we propose to increase our contingency budget considerably.”

Additionally, the Authority’s plan calls for changing the timing, approach to construction and phasing of the track installation to “mitigate risks affecting our Track and Systems procurement.”

The report pointed to major advances the High-Speed Rail program made in recent years, including:

• They hit an all-time high of 1,208 daily workers at 35 open Central Valley jobsites in November 2020.
• They doubled the total number of construction jobs created by the project from roughly 2,600 to 5,200.
• They dedicated $423 million in Proposition 1A bond funds to the reconstruction of the Los Angeles Union Station.
• They environmentally cleared two segments in the Central Valley and issued environmental drafts on four more segments in the Bay Area and Southern California, covering more than 420 miles of the San Francisco to Los Angeles/Anaheim system.

​According to CEO Brian Kelly, “Our job now is to advance the work we have started to keep Californians working, recover from the impacts of a global pandemic and progress this transformative project.”

The release of its draft business plan kicked off a 30-day public comment period that will close on March 12, 2021. To view the draft plan, go to www.hsr.ca.gov.