2005 Southeast Construction Market Outlook

Further Improvement over Strong 2004 Predicted

By Scott Judy

There is no doubt about it. For several years now, the Southeast's economic growth rate has generally stood as the most consistently positive in the nation. And that has certainly included the construction industry's efforts in Florida, Georgia, North Carolina and South Carolina.

In 2003, for example, the four-state region accounted for roughly one-quarter of all construction starts in the entire country, according to McGraw-Hill Construction's Dodge Analytics Group.

That percentage should only go up in 2004. Through the first nine months, the value of all new construction contracts reported in each of the four states ranged from 15 percent ahead of 2003 in Florida to as much as 23 percent improved in South Carolina.

And while those increases were due largely to across-the-board double-digit escalations in the largest sector, residential, most other construction categories were positive as well.

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For the coming year, McGraw-Hill Construction is predicting that the value of all construction in the four-state area - minus single-family housing - will total roughly $51.5 billion, or about 3 percent better than 2004's $50.1 billion tally. That collective value is built upon 5 percent overall growth in Florida, a 4 percent uptick in Georgia, 6 percent improvement in North Carolina and an 11 percent decline in South Carolina. The downturn in South Carolina is mostly due to an 89 percent decline in that state's power and utilities market, which reached a five-year high in 2004 and is expected to be impacted by a national decrease in these types of projects.

Contractors are feeling the good vibes, too.

"I would say there's going to be a pretty significant increase in construction activity in '05," said Steve Touchton, president of R.J. Griffin & Co. of Atlanta, a general contractor that works throughout the four-state region. "It just seems strong all over the Southeast, so I'm pretty optimistic. I think it'll be a good year."

William A. Pinto, president and COO of Atlanta-based Hardin Construction Co., agreed, though with a slightly broader perspective.

"The 2005 market is much more active than 2004 in most parts of the country, with more projects actually moving into construction," he said.

Still, he added that it's not a perfect scenario because as the amount of work escalates, materials availability and prices will continue to impact the industry, though probably not as dramatically as they did in 2004.

"It's a mixed message," Pinto said. "More work is available than the market can handle effectively, while the marketplace is being impacted by extraordinary cost escalations."

Rex B. Kirby, president and general manager of Suffolk Construction's Florida Division in West Palm Beach, sees a similar situation in South Florida, itself one of the nation's most surging markets.

"2005 is projected to be a very interesting year," Kirby said. "I say 'interesting,' because I don't know how else to describe it. In my 24 years of working in construction, I have never seen a more challenging set of circumstances.

"First, there is more work than we can handle," he continued. "We are turning down opportunities every week and trying to focus on jobs with repeat clients or financially strong clients that will offer repeat opportunities in the future. Coupled with this abundance of work, prices have escalated 15 to 20 percent on total cost of work, and this is causing problems with some projects, especially those that were presold or marginal to begin with."

Nationally and regionally, industrial construction is one category that should add to the mix of upbeat markets. McGraw-Hill Construction is predicting a 14 percent national surge in this area, while the Portland Cement Association foresees a 53 percent gain in industrial work.

Rocky Springer, vice president of business development for Southern Industrial Constructors of Raleigh, N.C., said, "We are seeing an increase in bidding opportunities in the industrial construction sector, both for mechanical and electrical construction, all over the Southeast."

The Regional Numbers

Indeed, McGraw-Hill Construction is forecasting historic highs for the region's commercial and industrial market, with totals in each of the four states attaining levels unmatched in the past five years: $6.1 billion in Florida, $3.1 billion in Georgia, $2.6 billion in North Carolina and nearly $1.3 billion in South Carolina. Collectively, that category should reach approximately $13.1 billion in '05, 9 percent ahead of 2004.

The region's biggest overall sector, "institutional and other" - which includes health care, government, religious, schools, libraries as well as amusement, social and other recreational buildings - is predicted to grow by a cumulative 7 percent in 2005 and total nearly $14.3 billion.

Here, too, this sector is forecast to reach five-year highs in each of the four states: $6 billion in Florida; almost $3.5 billion in Georgia; nearly $3.1 billion in North Carolina; and $1.7 billion in South Carolina.

Another strong and still-growing sector will be multifamily. In Florida, this category will remain the top market overall - as it has been since 2002, aside from single family - with approximately $7.75 billion worth of new contracts.

Though many condo-type projects have popped up during the latter half of 2004, McGraw-Hill Construction expects Georgia's multifamily sector to stay unchanged, with about $1.7 billion in new contracts. In North Carolina, this sector should increase by 12 percent, to total almost $1.3 billion, and it should improve by 11 percent in South Carolina to end up at about $736 million.

Cumulatively, the regional multifamily market should improve by 5 percent in '05 and total slightly more than $11.4 billion.

On a state-by-state basis, the overall numbers are mostly promising. (Again, the following figures reflect all construction, minus single-family housing.)

Florida contractors should keep even busier as that exceptional market moves ahead to total nearly $26 billion. Georgia's construction volume should end up at roughly $11 billion, while North Carolina's should grow to tally almost $9.5 billion. South Carolina's 2005 volume is expected to total roughly $5.1 billion in new contracts.

A more detailed look at each state follows. Additionally, the magazine takes a quick look at three of the region's biggest projects - One Miami, Atlantic Station and the Charlotte Arena. Southeast Construction will be following up with additional coverage of these projects as they progress through 2005.

Florida: Up 5 Percent

Activity in four of Florida's six sectors is expected to increase in 2005: commercial and industrial, up 9 percent to slightly more than $6 billion; dams, water, sewer and other, up 10 percent to just over $3 billion; institutional and other, up 9 percent to about $6 billion; and multifamily, up 4 percent to about $7.75 billion.

On the downside, the streets/highways/bridges category is expected to decrease by 2 percent to end up at nearly $2.7 billion, while power and utility projects are anticipated to slide by 51 percent to tally about $370 million.

As has been the case for many years now, South Florida will lead the state again, with numerous high-rise luxury condominium projects continuing and with significant activity still progressing at Miami International Airport.

Also part of the mix is the news of Scripps Research Institute's new Florida campus getting started in Palm Beach County, which will spur even further development in that already-hot area. The team of The Weitz Co. of West Palm Beach and San Diego-based DPR Construction won a $137 million construction management contract, but the exact location of the project has yet to be determined.

"Residential is the hottest market in South Florida," said Taras Diakiwski, business development manager for Weitz. "If you're doing that work, you're real busy. If you're not, it's difficult because there are a lot of competitors.

"Statistics have shown Palm Beach County is the fastest-growing in the area, and it will continue to get that way because of Scripps," he added. "As Scripps becomes developed, we'll see a whole influx of commercial and more residential projects."

Orlando appears to be picking up, though in a different manner than in the past. Historically dependent upon hospitality projects, several downtown-area contracts are under way, including a commercial high-rise, federal courthouse, university law school and several luxury condominiums.

In Tampa, projects include significant efforts at Tampa International Airport, several major transportation contracts and a $300 million Pinnacle of Tampa Bay project - a mixed-use development announced recently that is reported to include residential units, entertainment venues and parking.

Finally, all across the state, numerous transportation projects are under way or about to begin.

Georgia: 4 Percent Uptick

McGraw-Hill Construction's predictions for 2005 contract activity in Georgia show some notable upswings and downturns.

Commercial and industrial projects will be up 12 percent. A significant amount of such work will be under way at Atlanta's Atlantic Station this year, where construction manager VCC of Atlanta is building out The District, a retail and entertainment venue. Numerous other projects are progressing throughout metro Atlanta, such as the $120 million 1180 Peachtree project, which Turner Construction Co. is building for Hines.

Also, power and utilities jobs are estimated to climb by 124 percent. Though that improvement in power projects is the only growth projected for any of the four states, the 2005 estimate of nearly $229 million is still well below Georgia's five-year high of approximately $606 million in 2003. Major contracts that will move forward in '05 include Southern LNG's $100 million Natural Gas Storage Tank and Process Piping Lines project and a $99 million McIntosh Power Plant that the Southern Co. is constructing, both near Savannah.

Institutional-related projects are forecast to increase 7 percent and tally roughly $3.5 billion. Notable projects include numerous efforts at the Centers for Disease Control and Prevention's Atlanta campus. They include McCarthy Bros. Co.'s $130 million Building 18 project, Skanksa USA's $81 million contract to build a new headquarters and Turner's $60 million Global Communications and Training Building project.

Meanwhile, multifamily will stay steady with '04, water projects will decline by a notable 17 percent and the streets/highways/bridges category will decrease by 1 percent.

North Carolina: Greatest Growth Rate

Of the four states, North Carolina received the most positive prognostication from McGraw-Hill Construction, with a 6 percent growth rate forecast. If realized, that would lead to approximately $9.5 billion of new contracts.

Here, all sectors, except for power and utilities, are predicted to improve: commercial and industrial, up 11 percent to almost $2.6 billion; institutional, increasing 5 percent to total almost $3.1 billion; multifamily, up 12 percent to $1.3 billion; streets/highways/bridges, up 4 percent to nearly $1.3 billion; and water-related, up 3 percent to $1.1 billion. Power-related projects are expected to decline by 36 percent to total roughly $138.7 million.

These new contracts should add to an already strong market. Major projects are currently progressing in Charlotte, including the $175 million Charlotte Arena, future home of the NBA's Bobcats; the $175 million Northlake Mall that Skanska USA Building is overseeing; and the $120 million Ballantyne Village mixed-use project.

"We think we have good reason to be optimistic about what we are seeing in the year ahead," said Pat Rodgers, president and CEO of Charlotte-based Rodgers Builders. "Health care continues to be our strongest market, and we continue to see a strong outlook for those contractors who have a strong foundation in the health-care market."

South Carolina: 11 Percent Decline

The Southeast's smallest state market, South Carolina, should see an 11 percent overall decline, according to McGraw-Hill Construction. In all, new contracts will value an estimated $5.1 billion, down from 2004's $5.8 billion.

As noted previously, the decline will be almost entirely due to an 89 percent downturn in the nationally depressed power market. McGraw-Hill Construction estimates the value of power project contracts in South Carolina will decrease from last year's $799.3 million value to the $86.5 million expected for '05.

Water-related projects will also be down, with a 21 percent decline expected, for a total of $617.5 million.

Institutional, the state's biggest sector, should improve by 2 percent and total roughly $1.7 billion, while commercial and industrial will escalate by 5 percent to a nearly $1.3 billion level. The value of new contracts in the multifamily sector is expected to increase by 11 percent and total approximately $736.3 million - a five-year high for this category.

Two of the biggest building projects under way include Turner Construction's $90 million Lexington Medical Center project in West Columbia and an $88.5 million Pelham Wastewater Treatment Plant that Pizzagalli Construction Co. is building in Greenville.

School construction should stay strong in Charleston and Greenville County, where school districts are in various stages of roughly $1.3 billion worth of construction.

The roadbuilding sector should improve by 8 percent to end up at roughly $686 million. Still, that's well off this category's historic five-year peak; in 2001 contracts totaled more than $1.1 billion.

Though this downturn reflects the ending of the state's $5 billion "27-in-7" roadbuilding program (see Southeast Construction, November 2004), there are still numerous high-dollar projects under way, such as the $630 million Cooper River Bridge project near Charleston.

Useful Sources:

Engineering News-Record's national forecast story can be found at the following:

http://enr.construction.com/features/bizLabor/archives/041115-1.asp

ENR's summaries of forecasts from other entities can be found at the following:

U.S. Department of Commerce
http://enr.construction.com/features/bizLabor/archives/041115a.asp

FMI
http://enr.construction.com/features/bizLabor/archives/041115b.asp

Portland Cement Association
http://enr.construction.com/features/bizLabor/archives/041115c.asp

National Association of Home Builders
http://enr.construction.com/features/bizLabor/archives/041115d.asp

2005 Major Projects

One Miami
Atlantic Station
Charlotte Arena