2006 Industry Outlook

Forecast Comments from Leading Industry Representatives Around the Southeast

Ken W. Petterson, manager of preconstruction services, Hensel Phelps Construction Co., Orlando:

"The 2006 construction outlook for the Southeast United States is volatile to say the least. The resource demand caused by the damages from Hurricane Katrina coupled with an extremely large volume of privately funded development will test our ability to secure building materials and provide our projects with sufficient labor."

Bill Pinto, president and COO, Hardin Construction Co., Atlanta:

We haven't really seen major price increases as a result of the storms, although we have heard a lot of talk about what might be coming. As a result, I think we're going to see some projects that just won't happen, because the numbers have gone up to the point where the pro formas don't work. We'll see projects that get delayed because of that.

(However), I see health care continuing to increase, and the residential/condo market is so hot. Some of that is going to slow down - though it's at such a feverish pace that it might be hard to recognize (a slowdown). Schools will continue (strong). And we're starting to see a few office buildings come back, though I don't see a strong office market anywhere. And there's going to be more hotel work.

Atlanta is going to continue to be strong for several years. Orlando has a lot on the books to happen downtown - mainly residential and mixed-use - and that will continue to be strong. Tampa is focused on mid- and high-rise residential. Its downtown and Channelside districts have 30 projects that have been announced. A lot of those won't happen, but there's a strong demand still in Tampa. And Charlotte seems to be equally busy, with a continued focus on mid- and high-rise residential. There are some hotels being talked about in Charlotte.

I think 2006 is going to be a busy year for almost everybody, and into 2007. As long as pricing doesn't throw cold water on it, 2007 will be busy as well.

Chris R. Sheridan Jr., president, Chris R. Sheridan Construction, and president, Georgia Branch, AGC:

Our Georgia Branch, AGC members are busy, and the outlook for work looks good for 2006. We face inflationary pressures due to rising worldwide demand for materials, along with shortages for both material and manpower. The material shortages are due to rising demand and transportation disruptions mainly caused by the hurricanes hitting strategic locations on the Gulf Coast.

The demand for labor is high across the board. Our contractors need project managers, superintendents and jobsite workers. The labor shortage is compounded by recent congressional and state legislative efforts to address the illegal alien problems in this country. AGC will be at the forefront, both with Congress and the Georgia General Assembly, working to best address this important industry-wide issue.

advertisement

All markets in Georgia are strong according to my talking with AGC members across the state with the exception of the high-rise office market in Atlanta. That market is a bit overbuilt and thus soft.

Jack Darnall, vice president and manager of the health care division, Brasfield & Gorrie, Birmingham, Ala., and 2006 national chairman of Associated Builders and Contractors:

We think all segments of the commercial industry in our region will be explosive. There will be some inflationary pressure that will try to slow things down but it will not happen. One of the biggest challenges will be locating a suitable workforce large enough to handle the workload. Historically, too much work gets companies in trouble quicker than anything so people will need to focus on their comfort zone and not overextend themselves.

Health care is strong with many mega-projects being considered by various owners. Many healthcare facilities are expanding and upgrading to both keep up with the patient demand and also to be in a better position to compete.

Pat Rodgers, president and CEO, Rodgers Builders, Charlotte:

We continue to see the outlook as positive for the Carolinas, though there are market areas that are stronger than others. The Charlotte market and the Raleigh market continue to be strong. While the textile decline along the Interstate 85 corridor had an impact in the Carolinas, the South Carolina market appears to be gaining due to other businesses entering the region.

We are going to continue to be challenged by the shortage of craft workers. I think there are some subcontractors and general contractors who are at capacity now. There has been so much work available that the temptation to take a lot of work is going to be followed by the very real challenges of trying to put it into place with the labor shortage.

Dean Gwin, President, Sales and Marketing of Gate Precast Co., Jacksonville, Fla.:

Florida continues to be strong due to its popularity with retirees. An older population results in more health-care needs and secondary homes.

All of the health-care projects seem to be kicking off at the same time with more on the drawing board. The office market is still mediocre and hasn't come close to the level of the late 1990s. Multi-family construction continues to be red hot but the pace can't continue for much longer. K-12 and university work seem to be holding strong with no foreseeable slowdown.

Rex Kirby, president and general manager, Suffolk Construction Co.'s Florida division, West Palm Beach:

Although residential high-rise is still strong, there are rumblings of concern that the land and construction costs are reaching a point that may delay some projects, as the sales price is at a peak for the consumer.

From our point of view, we are not expecting relief on pricing anytime soon. In fact, we expect continued increases in material, operating and labor costs due to challenges such as the destruction of a major metal stud galvanizing facility and several drywall manufacturing plants by Hurricane Katrina, rising gas prices and demand for skilled workers. In South Florida, we are already considerably short of the skilled labor needed for the volume of work, and the rebuilding of damage in Louisiana and Mississippi is expected to heighten this shortage.

On a more positive note, we are seeing more opportunities on office buildings, specialty retail complexes, health-care facilities and public projects. The population growth in southern Florida is expected to continue at its hot pace, increasing demand for this type of work for the foreseeable future.

The bottom line is that the work is plentiful in South Florida.

Shaw Dargan, president, Dargan Construction Co., Myrtle Beach, S.C.:

The amount of work is just unbelievable. I've never seen anything like it in my life.

Since 1994, we have not left Myrtle Beach - everything we are doing is right here. And it's more than we have ever done in our 55-year history. We have 10 projects under construction right now, which is just about $300 million, and we are looking at close to $400 million for 2006.

There is a battle for concrete and reinforcing steel and that is reflected in the prices we're having to pay now for material. Reinforcing in 2004 was $375 a ton, and today it's nearly $900 a ton. That ripples throughout the construction industry.

Condominium sales - it's nuts. It's happening all over the place. So it's not only that 35-40-year-old market, it's also that baby boomer generation that is beginning to inherit a huge amount of assets from the "Greatest Generation." There's a (large amount) of assets that are being turned over to that baby boomer generation, many of whom are just entering their peak earning years. And they're buying second homes. They don't mind spending the money.

I'm not a fatalist, but there's got to be a slowdown in this condo market. There's only so many of these you can put up. So we better be cautious. Keep your ear to the ground, and stay in touch with your financial people to see what they are seeing, what they are projecting. But for now it looks good. We are very blessed. We better get it while the getting is good.

Lyle Blanden, president, J.O. Delotto & Sons, Tampa:

There's just a real demand. The warm states are the ones that have the growth. The one influence for the Florida area is going to be the affordability on the beaches. The affordability factor is going to drive more people inland, and I think you're going to see communities being developed inland, with golf courses and lakes. Those will flourish, in my opinion. (Coastal construction) is only going to slow down because there's no available land.

We do a lot of schools and churches, which is an offshoot of residential. The residential communities are branching out from the core areas, and have been for the last five to seven areas, so there's tremendous growth.

The challenge in the first half of 2006 is going to be the availability of standard materials that are being gobbled up by the hurricane repairs. Controlling the cost is extreme, and the increased transportation costs are just reasons for everyone to increase their supplies. That's an immediate challenge.

But for the next five years, Florida's going to grow. The baby-boomerss are still going to move to the warmer climates. And as they move, some of their families will move. What's going to influence the Southeast and Florida tremendously is the demographics of where people want to buy.

Jessie Brewer, co-chief operating officer, Skanska USA Building, Charlotte, N.C.:

2006 should be very good. The best market in the entire U.S. is in the Southeast - bar none. It's where we're showing the most growth.

The market segments that look really strong are health care, education - both K-12 and higher ed - as well as life science (biotech and pharma). The Triangle (area of North Carolina) is beginning to show signs of new projects and expansion. And we're really seeing a movement down in Florida - pharmaceutical companies picking up expansion programs.

Southeast Florida is very strong. One of our national strategic initiatives is to grow our market share in Florida considerably larger than it is. We're ranked in the top 10 in the state of Florida, but we want that presence to be larger. And really we see no obstacles to making that happen.

Overall, the market looks very strong. Florida's hardly been stronger. We're seeing really strong building programs that are occurring in every one of the market sectors there. Atlanta proper looks like an OK year - not back to where it used to be. North Carolina, certainly in the Triangle area and some of the coastal areas, is looking very strong. Certainly the academic world and health care world there (have) strong building programs. So we're not seeing any slowing down by any means. We see really strong capital improvement programs across the board.

For the materials shortages - I don't think we've seen as bad as it's going to get, frankly. And we expect to see more labor shortages. We're cautioning our owners to expect to see some price hikes when the major rebuilding begins. 2006 is going to be tough on some of our clients' budgets.

In the past two years, we've seen double-digit increases in the cost of construction (materials). That's before this catastrophe that happened on the Gulf Coast. So, without a doubt, it will be at least that in '06.

Bill Anderson, president, Associated Builders and Contractors of Georgia:

Overall, I've heard many optimistic comments about construction in metro Atlanta and Georgia, based on the amount of backlog our current contractor members have going into the new year.

Metro Atlanta continues to expand outward, and that's going to continue to fuel growth in the retail market. There's also another trend toward multifamily housing in the downtown area. The population growth of Atlanta continues to be strong.

Also, the Port of Savannah is continuing to grow. That growth will increase the need for industrial distribution centers in Atlanta.

There are definitely concerns about the supply of raw materials in the Southeast - and in the price increases in those supplies. Contractors are optimistic about next year, but that's one area they're concerned about. Growth would probably be higher if it wasn't for those concerns.

I have also heard some concerns about the office vacancy rates, which are still around 15 percent. So there are some concerns about how strongly that (market) can continue to grow with vacancy rates that high.

Overall, though, everybody's upbeat.

Ron Autrey, president, Miller Electric Co., Jacksonville:

2006 will bring further expansion in the construction industry in Florida. Businesses and families continue to relocate to Florida in record numbers. The real estate bubble should continue for investors and builders. Health-care institutions continue planned expansions. School systems cannot keep up with the need for new schools at all grade levels. The state budget for roadway construction and improvements will bring several billion dollars to the regional construction market. It will be another great year for contractors in the Southeastern United States and especially in Florida.

Miller Electric Co. recently closed the books on another 25 percent growth year, and our backlog for construction in 2006 supports an additional 25 percent expansion. Our branch offices in Miami, Virginia, North Carolina and Georgia are all predicting steady growth over the next 12 months. The general business climate and active business recruiting in the Southeast is favorable, and the level of international business recruitment activity is also at an all-time high.