2008 Southeast Industry Outlook

Forecast Comments From Leading Southeast Construction Industry Representatives

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

“Atlanta will still be strong in most commercial segments, especially in health care and education. Likely there will be a weakening of retail, at least in the short term. There will probably be projects delayed or scaled back, just because of concerns about the residential market.

“Education remains strong across the board. There is still a lot of growth expected in Atlanta over the next few years, and if it happens, it will drive health care and education. But there will be concerns about infrastructure. Bridges and roads will be a big question mark in Atlanta’s growth.

“For public projects, there could be concerns about the implications of the residential market and how that will impact the state budget. If sales tax collections are down, that could hurt the state budget for state projects.”

Mike Dunham, executive vice president, the Georgia Branch of Associated General Contractors of America, Atlanta:

“We’ve still got a high demand for schools, and infrastructure/sewer systems need addressing. And the retail sector, which normally follows housing, hasn’t seen a severe slowdown yet.

“In general, (members are) probably carrying more backlog of work into ’08 than previous years. The opportunities are still there. The thing that concerns (members) is the escalation of material prices that still may be in our future. And the demand for people is higher than ever.

“The single biggest thing that could affect construction is our water problem. The critical nature of the water shortage is putting us in a situation where they’re rethinking development and growth. Water is a serious concern and will be a big issue in the coming session of the legislature.”

Tony Aeck, principal at Lord, Aeck & Sargent, Atlanta, GA

“We are seeing a great deal of project initiation activity on all three of our customary ‘fronts’ institutional, governmental and privatized. Our optimism is running high about 2008 for this reason.”

Tom Beard, president and CEO, Palmer Electric Co., Winter Park, Fla.:

“We see a slight decline in commercial projects coming our way to bid for 2008, although this segment will still be strong. We see our service and remodel business being about the same as 2007. The 2008 residential market is going to be stronger in the apartment segment, weaker in the condo/townhome sector, and about the same in the single-family sector.

“In all segments, competition will be stronger and profit margins weaker. We see commodity prices in our business being stable for 2008, but energy costs higher. Overall, we are expecting a 12% increase in revenues for 2008, but profit margins are predicted to be down about 20%.”

John J. O’Donnell, president, Mainstream Construction Group, Orlando:

“I’m cautiously optimistic about 2008.  Our first quarter backlog of work is stronger than the previous few years, with that increase coming from the growth of our existing client base of developers of retail stores and restaurants.”

Steve Gennett, president and CEO, Carolinas Associated General Contractors, Charlotte:

“The Carolinas continue to remain in a positive economic growth mode. With respect to building construction, there’s pretty sound optimism (among our members) moving into the first half of ’08. For the year as a whole, I would attach some caution because of the current credit market. You certainly can see (the cause for optimism) in the number of projects that we’re carrying in our (project reporting) service. We’re seeing a high number (of projects), so that substantiates that positive feeling about ’08.

advertisement

“Also, the (dry) weather has created an interesting situation in that (some contractors) have burnt up their backlogs with work that was able to be started and completed in one fiscal year. It does create a longer-term question about backlog – and some firms are having some concern. But, I don’t see that as a predominant problem, particularly in the building side.

“Also, we do an economic forecast and the last report showed some decline in confidence. Some feel that things are not rolling quite as wide open as they had been.”

Ken Petterson, Hensel Phelps Construction Co.:

“Due to the past three years of rapid growth, the construction volume in Central Florida has reached a new plateau. Moving into 2008, commercial construction should remain relatively steady until we build out that which has been financed and designed. It appears architectural firms are experiencing a slowdown that ultimately will impact the construction industry within the next 18 months.”

Mike Harden, vice president/director of operations, Bovis Lend Lease, Orlando:

“In the Central Florida region we are engaged primarily in the health-care construction market. While other market segments have been negatively influenced by the weak housing market and tightened credit conditions, health care in general is unaffected and remains strong.  Several local health-care facilities are either undergoing significant expansions or plan to in the coming months. There are exciting local opportunities, with the hoped-for construction of the Nemours Children’s Hospital and the planned medical school campus at the University of Central Florida.”

Jessie Brewer, vice president, James B. Pirtle Construction Co., Davie, Fla.

“The southeast Florida construction market seems reasonably healthy for 2008. We are seeing many public-sector opportunities that will make 2008 and 2009 construction good. Some areas of private sector, particularly residential and retail, are declining. However, corporate and hospitality seem to have a steady flow of opportunities.

“The hot market sectors in the region are education (both K12 and higher education), health care and other public sector (counties and municipalities).

“We are seeing more interest from trade contractors to participate in estimating/bidding of projects. That is an indication that this group of contractors is looking for work. A large part of the increased interest from the trade contractors is due to the slowdown in the residential segment.

“There is increased competition from other construction managers participating in project pursuits, which is a shift from the slowing private-sector markets.”

Jim Croson, CEO, J.A. Croson, Sorrento, Fla.

“Our market, as a plumbing and HVAC subcontractor, appears to be strong in the state of Florida for 2008.  This is in spite of an almost complete shut down of our condo projects, which represented approximately 40% of our work in 2007. 

“The time-share projects remain steady and apartment projects are surging in most areas. Hotels are also strong.

“Jacksonville seems to be the hot spot for new apartment work, whereas central Florida projects are more diverse. The Southwest Florida market of Naples, Fort Myers and Punta Gorda, a great market for us for the last three years, has dropped off maybe 80%.

“One market that should be happening, but is not, is affordable housing work. There’s a big void on this one, and that needs to change.”

Perry Covey, Senior Vice President, Orlando division manager, R.J. Griffin & Co.

“In Central and South Florida, the market has overcome the downturn in the single- and multi-family residential markets with nonresidential work. Continued growth in population, job growth and general demographic factors should help us weather through the housing downturn and credit crunch.

“General pricing levels for materials, labor, subs and insurance are the driving force behind whether a project gets off the drawing board in today’s market. Continued/renewed price escalation in construction costs will regulate the level of activity here.”

Dan Whiteman, Coastal Construction Co., Miami:

“Obviously the South Florida condominium market has already slowed considerably and will stay soft through 2008. The only starts will be on great sites with financially strong developers. Vulture capitalists with strong cash reserves are waiting to purchase properties that are ready to be foreclosed on.

“The school market should remain strong, provided the taxpayers vote to approve the new tax plan passed by the legislature. Until then, school districts are taking a wait-and-see approach to whether they are going to have funds available.

“The hospitality market is steady, but not growing significantly. The office market is somewhat improved, but could quickly reach a saturation point as developers start similar projects simultaneously; much as they did in the condo market.

“Our biggest concern with the weakening market is not that we will get in financial trouble on any of our projects, but that many of our subcontractors might due to other projects they have undertaken in recent years. Some of these projects are not going to be successful, which may well cause them to go into default. Should this happen and subcontractors not get paid by other developers and contractors, then this could impact their ability to perform on our projects.

“Overall, South Florida will rebound more quickly than some parts of the state due to its strong ties to Latin America, Europe and the Northeast United States.”

Bill Pinto, Hardin Construction Co., Atlanta:

“I see 2008 as a mixed bag that will be market driven. Most projects that have a residential component will be declining, and other commercial markets will be steady to improving.

“Mixed-use projects with a lower emphasis on the (residential) component are still in demand. Hospitality should be steady to improving, and office buildings will be situational and location driven.

“Retail typically follows rooftops, and although it has not been directly affected to this point with the declining residential market, we may start to see that decline in 2008.

“Material costs continue to increase, although not at the rates of recent years. This will add even more pressure on proformas that may already be stretched. The slowdown in some markets is freeing up more subcontractors and labor to perform the work.”

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

“Demand for public construction in roadways, schools and airports continues to be high.

“Health-care facilities are also providing significant opportunities as they invest in new medical offices, hospital beds and surgical capacity. Development of nursing homes and assisted-living campuses is on the rise as the baby-boomer population ages and retires in the Southeast.

“Downturns in the housing market have not yet impacted the expanding demand for construction services in the industrial and institutional marketplaces. Despite the troubles faced by some financial and insurance institutions, technology and infrastructure spending continues to be positive.”

Mike Geary, executive vice president, James B. Pirtle Construction Co., Davie, Fla.:

“With today’s slowdown in the economy and the housing market, the construction industry has seen a reduction in overall activity but there are still lots of opportunities in South Florida.

“The education market has been extremely active the past four to five years, and the demand for housing created positive growth in student population and fueled the need for additional student stations. The slowdown in the residential market has stalled student growth in many school districts and has given them reason to re-evaluate their construction program needs.

“South Florida has a lot of large contractors that kept extremely busy the last couple of years with the condo boom. Now that the condo market is gone, these contractors are looking to fill a big void by entering new markets. But there is not enough to go around and many of the contractors will be forced to scale down their operations.”

Jim Schepp, Cox & Schepp Construction, Charlotte, N.C.:

“We feel very fortunate to have an excellent backlog entering 2008. We believe that while our market will not be quite as active as it has been in the last few years, it will still be healthy.”