At this time of year, many opinions and insights discuss the construction and real estate industries’ expectations and predictions for 2024. For Giroux Glass, a leading glazing contractor with a significant market presence in Southern and Central California, Nevada, and Arizona, we look at the coming 12 months with a more regional lens. Despite a general concern among most of what we have read and seen, we remain confident that there will be every opportunity to achieve our company revenue, profit, and new backlog goals for 2024.
However, we are realistic in understanding that we must be very intentional to succeed in a landscape that continues to take a long time to fully greenlight projects due to uncertain demographics and work patterns, rising cost pressure, and tight capital markets.
Leading Indicators and Strategies
Leading indicators such as the AIA Architectural Building Index (ABI) and Dodge Momentum Index foreshadow a challenging year. The ABI is a gauge to measure upcoming architectural billings and is a nine-to-twelve-month glimpse into anticipated future nonresidential construction spending. Below the 50-point threshold indicates that the average architectural billings volume lags behind historical norms. In October, the National average was 44.8 for all market sectors and regions, marking the eleventh consecutive month that billings were below the 50-point average value. The West Region index of 40 was the lowest of the four geographical regions comprising the United States.
The Dodge Momentum Index (DMI) is a monthly measure of initial reporting of nonresidential building projects in planning. This indicator generally leads construction spending for nonresidential buildings by a year or more. The 3rd Quarter report showed an overall downturn of 6.5%, with institution planning starting off at a significant 14.8%. According to Dodge, the good news is that compared to August 2022, the DMI remained 4% higher, indicating year-over-year growth despite the recent dip. (Dodge Momentum Index September 8, 2023).
Many sources suggest the downturn reflects a deceleration from the initial growth experienced from the pandemic rather than signs of recession. At a recent conference I attended in Las Vegas, one panelist lamented that despite population growth fueling demands for hospitality and office space in many sub-markets away from the Vegas strip, banks were reluctant to provide capital due to the uncertainty of what the future office will look like while also bracing for an increase in bad debt from existing non-conforming loans. I have heard this same concern echoed in other regions and market segments. The rise in interest rates has also created a pause. If the rates (which are not that far off the 30-year average of 7,74) are the new norm, it will take some time to adjust expectations.
Supply Chain and Regional Trends
In our industry’s supply chain, the steep price increases we experienced in glass, aluminum, paint, and mineral wool in 2022 have stabilized, and lead times are mostly back to industry norms.
The three markets we work in do share some similarities despite different dynamics. The volume of requests for proposals and quotations in Southern California has remained the same. Our Arizona office has shown steady growth over the past few years, as has our Nevada operation, where Giroux currently employs more union glaziers than anyone else in the State of Nevada. Our extensive service business, which provides repair and ongoing maintenance services to property managers and owners in Greater Los Angeles and beyond, remains an integral part of our company’s health.
The volume of budgeting and bidding opportunities remains robust everywhere we do business. Countering this demand, creating pressure, is the growing number of non-union projects and the lengthy time it takes from budget to bid to final award and execute the work. The time between the bid and the actual award concerns many peers, suppliers, and colleagues throughout the industry countrywide. As most of a subcontractor’s revenue is earned during project delivery, this long gestation period requires solid financial footing and agility to plan cash flow when projects break ground. The diversity in the products we furnish and install helps to “level load” our work and is a Giroux strength, along with patience.
There continues to be labor pressure. The number of skilled trades personnel plagues all construction trades. Training and maintaining competent design, engineering, and drafting in glass and glazing has been an ongoing challenge. We continue to see a trend with the expansion of 3rd party (both North American and offshore) drafting service availability; however, because of the often-uneven workflow combined with high turnover within many of these firms, these partnering opportunities create challenges in meeting schedules and developing standards and consistency in an ever demanding and dynamic construction environment.
Focus on Preconstruction
At Giroux, we focus on key accounts in the preconstruction process, building relationships and trust among all the project stakeholders. The more work we have in the preconstruction funnel, the more we can even out the highs and lows to continue delivering exceptional glazing systems and services.
Equally important, because Giroux offers such a wide array of glazing products (including curtainwalls, storefronts, doors and entrances, tenant improvement work, handrails, shower doors, mirrors, and others), we have the resources and expertise to shift and be opportunistic in our markets nimbly. We are enhancing our current fabrication capabilities in San Bernadino and Las Vegas by opening a new 75,000 SF facility in Phoenix in April 2024. This expansion will positively impact all our markets, improving speed to the project site and additional pre-fabrication assembly and glazing capability, including introducing Giroux’s pre-engineered unitized curtainwall system.
Conclusion
In summary, we are heading into 2024 realistically and optimistically. The steps our employee-owned organization has taken over the past few years have positioned Giroux well to weather short-term market deceleration by being opportunistic in supporting our customers throughout the project lifecycle in an evolving market landscape.