North Carolina Report

Government projects for the military, highways and education are fueling a rebounding construction industry in the Tar Heel State.

By Bea Quirk

Even though the North Carolina economy has sputtered over the last few years, the government sector has kept the state's construction industry going.

North Carolina has seen increased military construction, as well as federally and state-funded highway work. The state's university and community college systems are in the midst of massive construction projects and renovations, while local governments in the state's biggest cities are undertaking large civic projects.

"If it weren't for the federal government, the construction industry in east Carolina would be gone," said Tony Plath, a finance professor at the University of North Carolina at Charlotte who follows the construction industry.

Dave Simpson, North Carolina director, building division, for Carolinas Associated General Contractors, said things are beginning to pick up in the state, "but we still have a way to go before we can stop losing sleep. It's the public and government sectors that are leading the way."

The impact on contractors has been significant. For example, Scott Cutler, vice president of marketing for Raleigh-based Clancy & Theys Construction Co., said that in the late 1990s, about 95 percent of the firm's business was in the private market. Now, about half comes from the public/government sector.

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Plath, who conducts the quarterly Construction Barometer for the Carolinas AGC, is optimistic about the future. "We're at the point between recession and recovery, and I expect 2004 will be much better than anticipated," he said. "We're seeing good news in terms of hiring plans, amount of equipment purchasing and the diminishing inventory of commercial building."

McGraw-Hill Construction's monthly activity report listed roughly $1.7 billion in nonresidential construction in the state in the first five months of 2004, a 25 percent increase from last year, and about $4.4 billion in residential construction, up 27 percent from last year.

However, Plath added that this surge in construction is not occurring equally across the state but is focused primarily in the Piedmont region, particularly Mecklenburg, Wake and Durham counties. Charlotte, the state's largest city, is located in Mecklenburg, while Raleigh, the state capital, is in Wake. Durham is adjacent to it.

Meanwhile, at Fort Bragg, the military base from which many troops headed for Iraq are deployed, is experiencing a construction boom. In the last two years, the Army has awarded more than $550 million worth of construction projects for the base. This year, it has awarded a $38 million contract for the fourth phase of a barracks project and another $19.7 million for a joint operations complex. It also plans to announce the contract for a $47 million barracks facility by the end of September.

Most of the state's largest highway construction projects are centered on the urban Piedmont, in Mecklenburg, Durham, Wake and Guildford (Greensboro) counties. However, there are other major projects in Wilmington, Jacksonville, East Spencer and Sanford.

The largest current road project is the $131 million Knightsdale Bypass in Raleigh, followed by the $101.6 million Greensboro Western Loop; the $87.7 million expansion of Interstate 85 in Mecklenburg County; the $84.5 million Wilmington Bypass; and the $84 million Interstate 77 expansion, also in Mecklenburg.

According to a list compiled by Southeast Construction magazine, 18 of the Southeast's 50 largest highway projects currently under construction are in North Carolina. Five of the top 11 are in the Tar Heel State.

"That doesn't surprise me," said Barry Jenkins, North Carolina director of the highway division for Carolinas AGC. "Most Southeastern states depend heavily on federal funding for their highway construction. But North Carolina has its own program, which accounts for about $1.3 billion to $1.5 billion each year, about half of what we spend on highways."

Last year, an additional $700 million was allocated for North Carolina Moving Ahead, a two- to three-year program focusing on smaller projects to maintain existing roads and improve their safety.

North Carolina voters were farsighted in 2000 when they approved more than $3 billion in bonds for capital projects and renovations throughout the 59-campus community college system and the 16-college university system.

About $600 million of the bond money went to the community college system; $500 million of it dedicated to new construction. Nearly $400 million of it has been allocated for specific projects across the state.

Among those currently under way are a $7 million hospitality education center at the Asheville-Buncombe Technical Community College in Asheville and a $3.3 million classroom building and expanded student services building at Vance Granville Community College in Henderson. At Carteret Community College in Morehead City, two new buildings are going up, and several others are being renovated, totaling $14 million.

The bond monies are also one of several funding sources for a $6.4 million science and technology center at Nash Community College in Rocky Mount and for $11 million in projects, including a conference center, at the West Campus of Central Piedmont Community College in Charlotte.

Another $2.5 billion of the 2000 bond was allocated to the University of North Carolina system. The bond calls for 319 projects to be built by 2009, and 41 have been completed. Contract commitments currently total nearly $1.3 billion. Construction so far has been centered at UNC Asheville, UNC Charlotte, UNC Wilmington, Winston-Salem State University and the three campuses at UNC Chapel Hill, the system's flagship.

Charlotte and Raleigh are also the sites of major government-funded projects. In Raleigh, Wake County and the city have begun preconstruction work on a 500,000-sq.-ft. convention center and 450-room Marriott Hotel in downtown. Skanska/Barnhill has been named the construction manager at risk, and construction is expected to begin next year.

Also in Raleigh, two state-funded expansion projects - of the North Carolina Natural Science Museum and the North Carolina Museum of Art (both about $90 million projects) - are in the preliminary stages. Raleigh is still reeling from the bursting of the tech bubble, although Plath expected some activity in the pharmaceutical industry, research and health-care markets.

Work is well under way in center city Charlotte on the $172.5 million sports arena the city is building for the NBA Charlotte Bobcats, who will start playing there in 2005. Other government/public projects in the center city include a $143 million judicial center and a $27 million children's learning center.

Initial work has also started on creating a new light-rail system for the county, known as Charlotte Area Transit System or CATS.

Construction in Charlotte's industrial and office markets, long its strongest real estate sectors, remains sluggish as vacancy rates continue at their highest in years. But Plath expects to see a pickup, led by the financial services industry. Charlotte is the second largest banking center in the United States.

As hopeful as many are about the construction industry's future in North Carolina, there is a dark cloud in the form of escalating steel and concrete prices, as well as disruptions in their supply chain.

"That can't help but have a negative impact on the market, and some owners are already cutting back on new projects because of it," said Carolinas AGC's Simpson.