Business Slowdown?

Office Construction Weakening, but ’08 Still Expected to Offer Opportunities

By Debra Wood

Even though new office starts, especially for speculative projects, have tempered throughout most of the Southeast, several contractors are staying busy with corporate headquarters projects.

“We don’t see the office market as dead by any means, at least in Atlanta,” says Carl Hair, senior vice president of Hardin Construction in Atlanta. “It’s there, but it’s not strong, mainly because of existing inventory. Across the country there is a lot of economic pressure, but there are glimmers of hope that growth will continue.”

Hardin broke ground in August on the 200 Terminus, a multi-tenant office building in Cousins Properties’ $660 million, 10-acre Terminus mixed-use development in Atlanta. Hair expects to finish the 25-story, 575,000-sq-ft building project in September 2009. Hardin wrapped up the neighboring Terminus 100 office tower last year.

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Bob Douma, vice president and general manager of the Atlanta office of Batson-Cook Co., says developers are struggling to fill the available space in that market because many new buildings recently opened.

“I don’t know that there will be a lot of office construction going on in the short future,” Douma says. On the other hand, “Charlotte seems like a different place,” he adds. “Charlotte seems to be early in the cycle of build-up, whereas Atlanta is more mature and built up.”

Batson-Cook serves as lead contractor responsible for infrastructure, tunnels and the garage on Charlotte’s massive Wachovia First Street Project. It will contain a 51-level headquarters tower; 10-story podium building to house Wachovia’s trading floor; 2,200-car, eight-level parking garage; two museums; theater; Afro-American cultural center; and central energy plant.

Batson-Cook teamed up with H. J. Russell & Co. of Atlanta to construct the LEED-registered office building, which is aiming for gold certification.

For last quarter of 2007 and the fourth straight quarter, Charlotte had the nation’s lowest downtown office vacancy rate, 2.3%, according to research from CB Richard Ellis Group of New York. That was down 0.3 points from the previous quarter.

By contrast, downtown Atlanta had a vacancy rate of 20.3%, the fifth highest in the country. Metropolitan Atlanta did not fare much better, with a 19.1 vacancy rate.

Charlotte Center City Partners, a municipal service district-supported organization that promotes the economic and cultural development of the urban core, reports that more than 4 million sq ft of new office space is either proposed or under construction in the city.

In Florida, Orlando had the largest quarterly vacancy rate decrease of any downtown market, according to the CB Richard Ellis Office Vacancy Index, falling 2.8 points to 8.7%.

“There continues to be office work (in Florida),” says Ray Southern, CEO of Balfour Beatty Construction’s Florida division in Plantation. The contractor is currently busy in Boca Raton, Fla., building a $110 million, 635,000-sq-ft global headquarters for Office Depot. Construction began on the five-story, tilt-up structure in 2006.

Overall, McGraw-Hill Construction Research & Analytics analyst Jennifer Coskren projects that turmoil in the credit markets and a slowdown in employment growth will adversely affect the office market in 2008, even as vacancy rates remain relatively low.

Citing those reasons, McGraw-Hill expects a notable 13% decline in office project starts in the Southeast during ‘08. Even so, that should result in nearly $6 billion in new office projects in the four-state region, the company states, for the second-highest dollar volume within the past six years.

Mixed-use, Multi-tenant

Turner/BE&K/Davis, a joint venture of Turner Construction, BE&K Building Group and Walter B. Davis, all of Charlotte, is building the $100 million, 20-story, 390,000-sq-ft NASCAR Plaza office tower for Lauth Property Group of Indianapolis at the site of the NASCAR Hall of Fame. The LEED-registered project broke ground in May and is scheduled for completion in 2010.

In Atlanta, Balfour Beatty is working on the first $130 million phase of the $1.2 billion, 800,000-sq-ft, mixed-use Streets of Buckhead for Ben Carter Properties of Atlanta. The project includes 300,000 sq ft of office space and is scheduled to open in 2009.

Hardin topped out 3344 Peachtree, a mixed office-residential complex, in Buckhead in November. The Regent Partners of Atlanta project includes 500,000 sq ft of office space and is scheduled for completion this summer. Hardin also is working on the fourth office building at Piazza at Paces in Atlanta.

Corporate Work Steady

Banks in Charlotte and headquarters projects in Florida have presented opportunities for several contractors.

Another bank job besides Batson-Cook’s Wachovia project in Charlotte is the 32-story, 750,000-sq-ft, LEED-registered headquarters for Bank of America, currently under construction by Balfour Beatty. The $450 million project includes a 700-car parking garage and a 150-room Ritz-Carlton hotel. The office tower is scheduled for completion in 2010. This team also is striving for gold LEED certification.

In Orlando, Brasfield & Gorrie of Lake Mary, Fla., is wrapping up interiors on the 31-story, $80 million, mixed-use Dynetech Center. The concrete-frame building will serve as the international headquarters for Dynetech Corp., which provides sales support for corporations. The 614,000-sq-ft tower includes seven floors of office space and measures 152,000 sq ft.

The building is targeted for a May finish, says Sean Sweeney, project manager for Brasfield & Gorrie.

Hardin has begun construction on the $100 million, 450,000-sq-ft Darden Restaurants’ corporate headquarters in southern Orange County. The project is scheduled for completion in January., a joint venture between Skanska USA Building and , both of Orlando, topped off a $45.6 million, 10-story, 110,000-sq-ft headquarters building for Orlando Utilities Commission in January. The curved structure includes a first-floor lobby and bill-paying center, five levels of parking and four floors of office space. Skanska’s Dirk Coleman says interior work started in January and plans were to finish by September.

Farther south in Coral Gables, Coastal Construction Group of Miami is building the $48 million, 15-story, 575,000-sq-ft Bacardi U.S.A. building. The project is scheduled for completion by the end of the year.