The commercial market has sustained many companies during the recession, but now that segment seems to have largely dried up.
“It’s come to a screeching halt,” said Scott Burton, president of Las Vegas-based Prestige Pools. “It was pretty decent until just recently, but most of it has slowed down. We had done some hotels and apartment complexes this last year, but I don’t see much commercial coming up right away.”
Many of the commercial jobs that have helped companies stay afloat were in the pipeline before the recession hit, and now the prospects to replace them are few to none. This is largely because commercial real estate remains in a holding pattern as developers wait for financing to loosen. Thus, the HMAC segment (hotels, motels, apartments and condominiums) is largely at a standstill. In addition, government budgets are pinched, and while some work is still taking place at universities, military bases and municipal parks, it has slowed significantly.
In addition to fewer projects, commercial work now is seeing the kind of price competition that has plagued the residential market since the recession began. “We’ve seen prices come down 30 to 35 percent in the commercial sector,” said Bill Rowley, president of Rowley International Inc. in Palos Verdes Estates, Calif.
In the case of smaller-scale commercial jobs, many believe the lower bids are coming from builders without much commercial experience.
“They’re underpricing jobs terribly because they don’t understand the differences between residential and commercial construction,” said Kyle Chaikin, president of Chaikin Pools in Farmingdale, N.Y. “I cut my margins in half, but it’s still not anywhere near [the lower bids.]”
Many commercial developers know the risk they take by hiring inexperienced builders, but are willing to chance it because the firms they’re working with have performance bonds, Chaikin added.
When it comes to bigger projects that have more rigid barriers to entry, local builders find themselves competing against firms from around the nation. “There was one last year, a community indoor pool, and every builder and his brother all across the country bid it,” Burton said.
Even many large-scale commercial builders are lowering prices below the comfort zone, their competitors say, largely to keep crews working. Equipment manufacturers are predicting a slight increase in the commercial sector in 2011, with most of the work involving renovations and energy efficiency upgrades.