Private sector leads decline in construction forecast
A cautious private sector is likely to drive construction activity down in the coming year, according to an industry forecast released Jan. 28.
The annual outlook commissioned by the Associated General Contractors of Alaska pegs statewide spending on construction projects at about $4.3 billion this year with a near even split between the public and private sector.
If it holds, the $4.3 billion projection would be roughly one-third less than expectations for 2020, when roughly $6.7 billion worth of construction work was predicted.
However, Katie Berry, an economist with McKinley Research Group, the Alaska-based firm that compiled the forecast, said in a video conference presentation that accurately comparing what is likely to happen this year to last year is a major challenge because of the plethora of complications brought on by the pandemic.
Berry said researchers were able to identify roughly $100 million worth of canceled contracts and deferred spending but she believes that estimate is low.
According to preliminary state Labor Department data, construction industry employment averaged 15,700 workers last year — not counting self-employed contractors — down about 4 percent from 2019.
The $4.3 billion forecast is also about 40 percent less than 2019 when work stemming from the November 2018 Southcentral earthquake buoyed construction activity in the region.
Public sector projects are likely to account for approximately $2.1 billion, or 48 percent, of all the construction work done in Alaska this year while they usually make up just about a third of it in any given year, according to Berry.
“What’s really weighing on this (public-private sector) breakdown is COVID-19, oil prices; all of these factors that have really impacted the ability of private companies to move forward with investments and that’s what’s really rebalanced this mix in 2021,” she said.
As a result, the education and utility sectors are the only areas where growth in construction spending is expected to occur. The state and school districts are expected to spend $290 million replacing several rural schools across the state and work will continue repairing and replacing quake-damaged schools in the Anchorage and Mat-Su districts, according to Berry.
Utilities are pegged to spend about $300 million, with much of that going towards ongoing investment in 5G wireless networks by telecoms.
Oil and gas industry spending is likely to be in the $1.1 billion range, less than half of what it has been in recent years. While oil prices have rebounded nearly to pre-pandemic levels, global markets remain fragile with oil demand lagging behind some industry projections.
ConocoPhillips CEO Ryan Lance said during the company’s Feb. 2 earnings call that the major producer plans to spend enough money this year to maintain, but not increase, its energy production. However, Alaska was the one place Lance said the company would spend $400 million on development and appraisal work as the company has several advanced stage prospects on the North Slope.
Berry said the forecast was completed prior to President Joe Biden’s executive orders pausing oil and gas permitting and leasing on federal lands so it’s unclear how those may impact North Slope capital spending in the coming years.
Berry said Defense Department spending — a boon particularly for Interior contractors of late — is likely to be flat at approximately $525 million this year but she noted that some of the large projects in the region, such as the bed-down of the F-35 fighters at Eielson Air Force Base, are nearing completion.
Residential construction should remain stable as well in the $350 million range, according to the forecast, as low interest rates and growth in the Fairbanks and Mat-Su areas spur home construction despite a continued decline in the statewide population.
Elwood Brehmer can be reached at [email protected].