Atlanta Report

Area Construction Appears to Be Gaining Momentum

By Chuck Green

The need to beat rising interest rates and the ongoing renewal of downtown Atlanta are two factors expected to foster a continuing surge of new multifamily properties in 2006.

"People want to live, work and play in one place," said David Schoendorf, senior vice president and Atlanta division manager for R.J. Griffin & Co. of Atlanta.

Significant examples of the stir of residential activity include the Twelve Atlantic Station mixed-use structure as well as the Realm condominium. The $60 million Twelve Atlantic Station project was completed in December, while the $55 million Realm is expected to be finished in June.

The growth downtown is indicative of the 10-county region as a whole. In 2005, the Atlanta metropolitan region grew at its fastest rate in five years, according to the latest population estimates by the Atlanta Regional Commission. ARC's latest estimates show the population reached more than 3.8 million as of April 2005, growing by more than 97,000 during the past year.

Previously, the largest population gain was 101,621 in 2000-2001. Population in the Atlanta region has averaged nearly 77,000 new residents each year between 2000 and 2005.

"Atlanta now has picked up dramatically with residential projects," said Mike Hampton, principal in charge of Bovis Lend Lease of Atlanta.

Growth-Oriented

"We're definitely starting to see growth," said Bill Anderson, president of Associated Builders and Contractors of Georgia, which is based in Atlanta. "A lot of people, if they haven't already purchased a home, are definitely looking. People are also encouraged to move more toward the downtown area because of its remodernization."

For instance, the $290 million Georgia Aquarium, located near Centennial Olympic Park and the Georgia World Congress Center, is the world's largest. It opened in November and is expected to attract more than two million visitors to the city in the first year and create more than 200 job opportunities.

Adding to the momentum of that area is the $96 million World of Coca-Cola Museum, which is located next to the aquarium and is being built by C.D. Moody Construction Co. of Atlanta.

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"Projects like these create opportunity," Anderson said. "It reflects the entertainment hub Atlanta is becoming."

Schoendorf said that to support the growth, it's incumbent upon the city to provide additional water and sewer facilities to meet the growing demands. "I think water and sewer facilities will continue to be a challenge for developers, and that impacts our industry," he added.

And then there are the rising construction costs to deal with, Schoendorf said.

"The urban high-rise, lower price-point product that we build in Atlanta cannot sustain the construction cost increases we are seeing," he added. "Rising construction costs are a reflection of factors such as availability of materials and tightness in the labor market."

Calling it "another strong sign of economic growth," Hampton said the hotel sector also is expected to flex its muscle in the metro area in 2006.

"When you build hotels, that's a good sign for the economy because your tourism and convention business has to be working well, as does your airport," he said. "Clearly those two big economic drivers are working for Atlanta."

Hampton added that metropolitan Atlanta has been playing catch-up with other regions of the Southeast largely because of an overdose of construction related to the buildup surrounding the 1996 Olympics.

"I think the market here has lagged behind some of the Southeast mainly because it got so overbuilt prior to and after the Olympics," he said.

ABC's Anderson was only cautiously optimistic about the region's hospitality market. "We're starting to see a comeback, although not as strong as other areas," he said. "It's a little too soon to tell because it has been rather slow for the past few years."

High on Health, Education

Meanwhile, contractors also are high on health care and education.

"Health care and schools are both driven by the increasing population of metro Atlanta," Anderson said. "As population increases, health needs, as well as the number of schools increase."

R.J. Griffin & Co. is building a $94 million expansion at Children's Healthcare of Atlanta at Scottish Rite, for example. Another $51 million project, Gwinnett Medical Center at Duluth, is targeted for completion in June.

"We've kept health care as a focus ever since we started the company, because during difficult economic cycles, the health-care sector seems to stay solid," said Schoendorf, whose firm also is working on health-care projects in Savannah, Columbus and Augusta.

Additionally, Bovis Lend Lease is slated to complete the $73 million Emory Johns Creek Medical Center by January.

In the educational sector, W. G. Yates & Sons Construction Co. is constructing the Georgia Institute of Technology's $40 million Christopher W. Klaus Advanced Computing Building, expected to be completed by summer.

And Turner Construction of Atlanta is heading for a September completion of the $60 million Molecular Material Sciences and Engineering Building at Georgia Tech.

Churches will also continue growing for the foreseeable future, Schoendorf said.

His firm will begin work in April on Blackshear Baptist Church in Hall County, a $12 million project, while construction of the $10.2 million New Macedonia kicked off in January. Also, an $8 million expansion of Mount Paran Church is scheduled to complete by fall.

Caution on Office Market

Builders, however, are not quite as upbeat about the performance of the office market in the upcoming year.

"Atlanta got hit pretty hard by the e-economy with all the data centers and dot-comers out there," Schoendorf said. "They were taking 50,000-sq.-ft. spaces at a pop. When all that collapsed, it left a lot of vacant space. Obviously, the office market still has not completely rebounded, although we're finally starting to see signs.

"We used to build 10 or 12 high-rise office buildings at once. I think we're another three or four years away from getting back to where we were."

According to the most recent Atlanta Office Market Report, published by Dorey Market Analysis Group in October, downtown has 53 commercial office properties totaling 16.8 million sq. ft., of which nearly 4.1 million sq. ft., or 24.2 percent, is currently vacant. Net absorption in that quarter was 248,921 sq. ft.

"Overall, as I travel the Southeast, other areas seem to have perked up quicker, but we're now catching up," Anderson said.

One sign is the 41-story, $125 million 1180 Peachtree project recently developed by Hines of Atlanta and built by Turner. "This building is the first significant commercial office building to be built in Atlanta in over a decade," said Paul Little, Turner senior vice president. "Atlanta has a fairly healthy demand for new office space in the Midtown and Buckhead markets, but we need to fill some space in some attractive existing buildings before we expect to see expanded growth in the commercial office sector in January of 2007."

Also under way is 55 Allen Plaza, by Brasfield & Gorrie of Kennesaw, Ga.

Manpower Needed

If the metro construction market truly is to meet its potential for 2006, builders say more workers are needed.

"There isn't enough manpower to execute the work," Hampton said. "There are challenges getting hourly workers into the workforce and trained, and there are challenges of getting enough subcontractors who have the capacity to continue to build.

"And no one can put their finger on what's going to happen to materials supplies because of the materials that are going to be diverted to the Gulf Coast and regions that were hit by Hurricane Katrina."

Anderson agreed that the hurricane put a burden on local construction activity.

"How much of that will draw from the labor market pool?" he asked. "Here in the Southeast, it's too early to tell. It's a tough question, because labor already is in short supply."