2007 Southeast Industry Outlook

Forecast Comments from Leading Industry Representatives Around the Southeast

Millard Choate, CEO and president, Choate Construction Co., Atlanta

Certain southeastern construction market segments should continue to expand in 2007, fueled by demographic shifts, high-density mixed-use developments, continued job growth of the Sunbelt and maturation of the Interstate-85 industrial corridor. Construction markets that will contract in 2007 include large retail power centers, large speculative office parks and manufacturing facilities.

In contrast to the general decline in manufacturing, there are regional bright spots. More manufacturing and industrial concerns are contemplating relocating and expanding along the I-85 corridor. The large part of the expansion is due to the automotive manufacturing plants recently built in Alabama, expansion in South Carolina and Kia planned for Georgia. This automotive growth requires suppliers to locate relatively close to provide quick supply for the main assembly plant. This will continue to spark the growth of our Eastern shipping ports and intermodal transportation hubs, from Virginia and Charleston to Savannah and Jacksonville.

Jessie Brewer, co-COO, Skanska USA Building, Charlotte:

The Southeast is clearly the most robust construction market region in the USA in terms of amount of opportunities and project appropriation. The challenge for contractors and construction managers is finding qualified subcontractors, trained management and skilled workers to do the work.

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The strongest market segments continue to be education, health care and commercial. We see just as many opportunities and activity for 2007 as 2006. 2007 will undoubtedly continue to deal with the resource shortages, but also construction budget challenges. Clients will be faced with hard decisions between the appropriated budgets they have and the cost of construction.

We don't see higher-than-expected inflation occurring but the owner budgets haven't been revised to accommodate last year's drastic hike in construction costs.

The hottest state will be Florida again. But general conditions costs will increase in South Florida due to the increased cost of living for the top management performers and the increased compensation packages being offered.

Tom Raney, senior vice president-marketing, R.J. Griffin & Co., Atlanta:

The Southeast construction market will continue to flourish as contractors continue to build the large mixed-use projects that were started in 2006. There are a multitude of developers who are putting together large mixed-use projects slated to start in 2007 and 2008, but many of the proposed projects will slide or disappear completely. Those that move forward will be with the most successful long-term players in the market.

The office market seems to be picking up a little steam in select markets throughout the Southeast. And the hotel market seems to have a lot of attention with new boutique hotels and new chains.

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

All indications point to continued growth in Atlanta's commercial construction market in 2007. One of the strongest markets continues to be mixed-use developments, which are now even being planned in the suburbs in addition to downtown.

The downtown office market still shows potential although this segment has softened. Also, the speculative office market seems to have weakened significantly. Retail, while still steady, will likely slow since residential housing is slowing somewhat.

Two spotlights in Atlanta's commercial construction market are education and apartments. Recent expansion and renovation announcements by Emory University, Georgia State University and the Georgia Institute of Technology are in the billions of dollars. These are massive projects even for a large market such as Atlanta.

Dean Gwin, president of sales and marketing, Gate Precast Co., Jacksonville:

From a sales point of view, 2007 should be as strong as 2006. Multifamily construction continues a downward trend but medical, governmental and office construction are expected to fill the void.

Architects are expecting solid levels of activity to continue through 2007.

Thomas P. Murphy Jr., chairman and CEO, Coastal Construction Group, Miami:

Schools continue to be a very strong market in South Florida as we are under a state mandate to build more classrooms. We think this will probably be a strong market for a least the next five years.

There are a tremendous number of office buildings on the drawing boards and two major buildings just broke ground, with many following. There is also a strong market for smaller, mid-size office buildings. We think this market will be solid for the next three to five years.

With the aging of the country, especially in South Florida, we think assisted living-type housing will be strong for years to come.

Also, every architect we know that is in the hospitality business is currently designing as many hotels as they ever have. We look for the hospitality sector to be very strong for years to come.

With regard to costs, our guess is that they have definitely leveled off and now are starting to even drop in South Florida.

Dan Whiteman, president, Coastal Construction Co., Miami:

We have definitely seen a cooling of the luxury condominium market, with the exception of those located on the water. Anything that is on the ocean still seems to be attractive to buyers, and the developers we are working with seem confident that those projects will move ahead on schedule.

Dade, Broward, and Palm Beach counties all have a need for more schools and each of these school boards have plans for significant construction awards in the coming year.

Rex B. Kirby, president and general manager, Suffolk Construction Co., West Palm Beach, Fla.

Like many, we have been unable to take on all of the opportunities presented to us over the last few years based on the resources we have. Further, subcontractors have been stretched beyond capacity and it has been difficult to find companies with the ability to take on work.

Overall, the construction opportunities are still plentiful. K-12 schools from St. Lucie County to Miami-Dade are a big market for us, as are public facilities. It seems the growth of residential over the last few years has now fueled the growth of support facilities for that growth. The office building market has heated up recently, with many high-rise office building opportunities out there due to 90-plus percent occupancies.

Dave Auchter, vice president, The Auchter Co., Jacksonville, Fla.

The overall regional residential market has cooled but Jacksonville's downtown resurgence and the significant investment in downtown public infrastructure continues to give developers confidence in well-planned riverfront developments.

Jacksonville's medical facilities are the hot spots. Multiple health-care providers continue to expand, including projects in burgeoning regional counties and main campus additions and renovations at Baptist, Shands, Mayo, St. Vincents and others.

Mark P. Wylie, president and CEO, Central Florida Chapter of Associated Builders and Contractors, Orlando:

The greater Orlando construction market hit record numbers in 2006, with just about every sector experiencing growth. Will that volume of work continue in 2007? Probably not in every sector.

But while construction activity in some sectors will take a breather, others will be expanding to even greater levels.

Public school construction will continue unabated. University of Central Florida construction is another sector that continues to experience growth, with a new stadium, dorms and classrooms planned.

The well-publicized slowdown in residential work will have some important effects on commercial and institutional work. The intense pressure on the costs of materials will abate somewhat, and while it has not resulted in substantial discounts, the costs are expected to be flat for many months, giving buyers a chance to plan the costs of their projects.

Additionally, Orlando is already one of the top five destination cities for business and personal travel, and it is not standing still. Hotels, resorts, hotel-condominiums and time-share resorts are planned throughout the southern part of the region.

In short, the list of opportunities in Central Florida is staggering when compared to other cities and many states. Infrastructure development of water, roads and power will also expand to support this growth.

Steve Rivers, Hardin Construction Co., Orlando

The (Orlando) market remains strong at least through 2007 with projects that started in 2006. Many of our prospects still look favorable for early 2007 starts, which will make this year another busy one. Central Florida does not seem to be as dramatically impacted as other regions in the Southeast with resort development slowing somewhat but other markets remaining hot.

For example, retail will remain strong through 2007 and into 2008 as it catches up to the glut created in residential markets.

The general conditions still seem very favorable. The subcontractor and supplier markets are already reacting to fears of a slowdown with prices staying fairly constant. I believe everyone is feeling okay about 2007, but firms are beginning to look at how to position themselves in 2008 and 2009, fearing that the steady stream of work over the past three years might slow to a trickle.

Steve P. Cona Jr., president/CEO, Associated Builders and Contractors, Florida Gulf Coast Chapter, Tampa:

I believe the 2007 commercial markets will stay steady through the first quarter of the year with an increase in commercial projects during the last half. The Tampa Bay area south to Naples will remain strong with new construction and renovations for schools, hospitals and health-care facilities. Also, there will be an increase in retail interior re-builds/renovations and smaller commercial office building projects. The only area slowing down or coming to a halt is the condo market.

Page McKee, Hardin Construction, Tampa:

The Tampa Bay market is in transition. Increased supply and higher interest rates have slowed the residential market. At the same time population growth has increased demand for office, hospitality, schools, retail, health care and residential rentals. Overall the market is healthy but will lag behind 2006 as plans are made for new building types.

The residential market is the only sector really slowing down. However, the large numbers of apartments converted to condominiums has resulted in a demand for rental property, particularly in the urban areas.

Overall the general market conditions look good. However, increased land costs, increased construction costs and higher insurance rates will result in higher rental and purchase rates for the end users. Development may be slowed in 2007 as the market adjusts to and accepts new cost levels.