2004 Southeast Construction Market Outlook

Value of Region's Construction Starts to Remain Level in 2004

by Scott Judy

The collective value of 2004 construction starts in Southeast Construction's four-state coverage area will remain on par with 2003, with the region's nonresidential activity reviving sufficiently to overcome declines in residential and engineering construction, according to McGraw-Hill Construction Dodge Analytics.

McGraw-Hill estimates the collective value of all construction starts in the Southeast region at approximately $119.1 billion for 2004, down only slightly from 2003's $119.5 billion tally.

Nonresidential and engineering projects in the four-state area of Florida, Georgia, North Carolina and South Carolina should total roughly $35.6 billion for a cumulative 3.6 percent increase over last year.

That total would be similar to 2002's total for these categories, which was almost $35.9 billion.

Residential construction, the saving grace for the nation's construction economy over the last few years, is predicted for an overall downturn of 2 percent within the four-state area. It is expected to be down from its 2003 total of $85.2 billion to approximately $83.5 billion in 2004.

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"The four-state region has been a very strong region of the country in terms of construction activity," said Kim Kennedy, manager of forecasting for McGraw-Hill Construction Analytics and Consulting Group. "In 2003, it will account for almost a quarter of the total value of U.S. construction starts. But because this region's activity is more highly concentrated in residential housing than other parts of the country, it won't perform quite as well during 2004."

The Southeast's nonresidential sector will outpace the national market, Kennedy said.

"The nonresidential recovery in this region is expected to be twice as strong as in the United States as a whole - 8 percent growth versus 4 percent nationwide," she said. "Generally speaking, this four-state region will benefit greatly from the 2004 economic upturn."

Specific Southeast markets that will outperform the national scene in 2004 include those that typically are associated with a growing population, such as stores, hotels, health care, streets/bridges and water supply projects, as well as the structure type most associated with the Orlando area, amusements. Manufacturing and dormitories - which includes both college dorms and military housing - will also be quite strong in 2004.

Kennedy said that nationally and regionally the nonresidential market is reflecting the generally improving economy.

"The turnaround in nonresidential construction is largely due to the strengthening economy, particularly the strengthening business sector, which will encourage more business investment in most types of commercial real estate and health care," she said.

The residential market, which includes high-rise condos, will likely diminish due to an expected increase in interest rates but will remain at high levels.

The Southeast's engineering market will also be in decline, with a 5 percent decrease expected. That's below the national prediction for this market of flat growth, and is in contrast to recent years, when the region's engineering activity generally outpaced the national average.

State-by-State: Some Ups, Some Downs

On a state-by-state basis, South Carolina should experience a mild downturn in total construction (including residential) of about 3 percent, which adds to the state's 1 percent overall decline in '03. The prediction for Florida is a significant 6 percent decline in 2004 after a 7 percent surge last year. Notably, if this occurs it would mark only the second time in the past 10 years that the state's total construction value has declined.

Meanwhile, Georgia and North Carolina are expected to see significant upswings in 2004, of 6 and 10 percent, respectively. In both instances these upticks would reverse declines experienced in '03, when Georgia activity decreased by 9 percent and North Carolina construction by a mild 1 percent.

A more detailed look at each state's outlook follows.

Florida - Nonresidential Won't Prevent Decline

After three straight years of declines, Florida's nonresidential market will move up in 2004 with a healthy 7 percent upswing, according to McGraw-Hill. That won't be enough, though, to prevent an overall softening.

McGraw-Hill Construction further breaks down the nonresidential category into commercial and industrial projects, and institutional. The commercial and industrial market should improve by 9 percent over 2003 - a year that saw this category decline by 3 percent for its third straight downturn. Subcategories here showing the greatest improvement over '03 include manufacturing (79 percent) and the important hotels market (33 percent).

Some of the more prominent hotel/hospitality projects to be announced recently include the $65 million St. Regis Hotel and the $220 million W Hotel and Residences project, both in Fort Lauderdale.

The institutional category is also reinvigorated, and is expected to improve by 5 percent in '04, compared to a flat 2003. Among the stronger sectors here will be health care/hospitals, expected to improve by 13 percent; religious facilities, by 23 percent; and amusements, 27 percent. The latter news regarding the amusements sector is especially noteworthy considering its prominence within the Florida construction economy.

Engineering construction, which includes public works projects such as highways, streets, bridges and water-supply contracts, is expected to decline by a considerable 15 percent. McGraw-Hill Construction expects the value of project starts in this market to total almost $5.4 billion in 2004, down roughly $1 billion from last year and about $1.7 billion from its historic high of almost $7.1 billion in 2001.

While the Florida Transportation Builders Association is concerned about state politicians potentially looking to the transportation fund to fix budget woes, several notable construction management contracts have been awarded recently for future work.

These include Parsons Brinckerhoff's winning of a construction management contract overseeing $400 million of work with the Orlando-Orange County Expressway Authority as well as a contract to design a Panama City Beach bridge. And Jacobs was awarded a $60 million bridge design project for Lee County.

Tampa projects will keep contractors busy, too, as the Tampa-Hillsborough County Expressway Authority moves forward with its construction of the $350 million Lee Roy Selmon Crosstown Expressway, and Granite Construction ramps up with its $74 million reconstruction of the Interstate 275/I-4 Interchange for the Florida DOT.

On a geographic basis, South Florida will continue to lead the way. According to McGraw-Hill Construction, this market was one of the nation's top performers in 2003. For example, in the first 10 months of 2003, seven out of the nation's top 10 projects, rated by dollar value, were located in South Florida.

Georgia - Positive Across the Board

Charles Garbutt, president of C.E. Garbutt Construction Co. in Dublin, Ga., and president of the Georgia Branch of AGC, said quite simply about 2004: "It's all looking to trend upwardly."

McGraw-Hill Construction agrees.

Unlike Florida, construction activity in Georgia should increase in all sectors during 2004. The value of total construction starts is expected to increase by 6 percent overall in 2004, with nonresidential improving by 5 percent, residential by 6 percent and engineering by 3 percent.

Within nonresidential, the commercial sectors should be the strongest for Georgia contractors. Most notably, strong rebounds in the warehouse (31 percent), offices and buildings (15 percent), hotels (32 percent) and parking garage (23 percent) categories will help to reverse '03 double-digit downturns in warehouses, offices and buildings and hotel markets.

Declining nonresidential sectors will include manufacturing, expected to decrease 16 percent; religious projects, down 18 percent; and schools, down 6 percent.

Of course, attention will be on the Atlanta area, where Hartsfield Atlanta International Airport recently unveiled plans for a $982 million international terminal, and where a joint venture of Jacobs, Turner and E.R. Mitchell is moving forward on a $456 million Consolidated Car Rental facility.

In the urban areas, various contractors will be busy on such projects as the $2 billion Atlantic Station development and the $200 million Georgia Aquarium.

In the suburbs, numerous contractors will be active at the $400 million F. Wayne Hill Water Resources Center. Other public works projects will also generate activity, such as the $138 million Nancy Creek Tunnel project and the $153 million expansion of the Scott Candler Water Filter Plant.

North Carolina - Strong Resurgence

Like Georgia, all three of McGraw-Hill Construction's three main construction sectors will go positive in '04, but with greater increases across the board. Engineering activity will show the greatest percentage increase, with a 19 percent improvement, followed by an 11 percent uptick in nonresidential and 9 percent growth in residential.

Overall, the value of 2004 construction starts in North Carolina should increase by roughly 10 percent.

Of the nonresidential subcategories, commercial projects will be the most robust, improving by 21 percent in general. Leading gainers here include the warehouse market, set to improve by 124 percent; manufacturing, poised for a 67 percent gain; parking garages, 21 percent; hotels, 19 percent; and stores, 16 percent.

In the institutional category, amusement starts should increase by 38 percent. Meanwhile, dormitory and religious projects are anticipated to decline by 12 percent, while the value of government project starts is expected to decrease by 9 percent.

Residential construction will also show strength, with the two-family project type showing the greatest percentage increase, an expected 24 percent.

Of all four states, North Carolina's engineering-type projects will show the greatest increase overall, with a 19 percent improvement. Leading the charge is an anticipated 57 percent escalation of the streets/highways sector, 18 percent growth in water-supply work and 39 percent improvement in utilities.

Geographically, Charlotte will be the center of activity, with work progressing downtown on a $172.5 million NBA arena, and a ramping up of construction work at the University of North Carolina at Charlotte. Statewide, contractors indicate that, as a result of $2.5 billion in state bonds approved three years ago, university work will keep firms busy.

"I'm looking forward to some good things this coming year," said Cleve Paul, president of D.S. Simmons, Goldsboro, N.C., and chair of the Carolinas AGC Building Division. "There's certainly going to be good in the public sector."

South Carolina - A Mixed Bag

As a whole, the prognosis for South Carolina is most similar to Florida's - improvement in the nonresidential sector and declines everywhere else.

Overall, McGraw-Hill Construction predicts a 3 percent decline for South Carolina's 2004 construction starts. Nonresidential activity will show a sizable increase of 13 percent, but that won't be enough to overcome the declines in residential and engineering.

Within the nonresidential category, commercial projects will show a strong 17 percent improvement in '04, while institutional starts increase by 10 percent. In the commercial category, hotel starts will increase by an expected 111 percent, manufacturing by 47 percent and warehouse facilities, 30 percent.

Institutional projects will vary wildly, with double-digit increases or decreases reported in all subcategories.

Leading the positive side of the equation will be health care, expected to grow by 28 percent, followed by schools, libraries and labs, with 26 percent improvement anticipated, and 23 percent growth forecast for amusements.

Declining sectors will likely include: dormitories (down 47 percent), government (down 33 percent) and religious (down 26 percent).

Residential construction activity should diminish by 7 percent, including declines of 21 percent in apartment projects and 4 percent in single-family work.

Engineering projects will also show a 4 percent decline. Here, too, the various sectors will fluctuate considerably. Utilities work, for example, will recover significantly in '04, shooting up 225 percent after a 95 percent decline in 2003.

Other leading sectors will include environmental work, expected to improve by 81 percent, and bridges, set to increase by 38 percent. Declining sectors should include sewer/hazardous waste projects, anticipated to be down 30 percent, and street/highway contracts, forecast for a 19 percent decline.

Still, South Carolina's "27-in-7" program, initiated recently to build 27 years worth of projects in seven years, will keep that state's transportation market robust. The $600 million Cooper River Bridge project will be a symbol of this strong construction sector.