Equipment Type

Construction Outlook 2008

The new year should be an interesting one for contractors throughout the southeast. How does it look? Some observers are optimistic about some market segments; others are decidedly less enthusiastic. Here's Dixie Contractor's annual state-by-state look at what 2008 may hold in store. Alabama Outlook: Generally Good Henry Hagood, president of Alabama AGC, is one of many who believes the outlook ...

January 07, 2008

The new year should be an interesting one for contractors throughout the southeast.

How does it look? Some observers are optimistic about some market segments; others are decidedly less enthusiastic.

Here's Dixie Contractor's annual state-by-state look at what 2008 may hold in store.

Alabama

Outlook: Generally Good

Henry Hagood, president of Alabama AGC, is one of many who believes the outlook for Alabama is good in 2008.

"We have a lot of work coming up in Alabama," Hagood says, "and it is generally spread out across the state."

Reasons for that optimism include significant environmentally oriented utility work, a new rail car plant in northwest Alabama, and continued post-Ivan hurricane recovery work.

Also notable is the area of school construction, Hagood says. In Jefferson County, for instance, more than a billion dollars in bonds should support school construction for some time to come.

Many look for 3-percent to 6-percent growth in the commercial and industrial sectors.

"That sounds pretty good to me," says Jeff Masters of Alabama Associated Builders and Contractors, adding that in Birmingham there is talk of a domed stadium, two new biomedical centers, a new $400-million data center, and two major distribution centers of about 650,000 and 800,000 square feet each. Medical centers and hospitals are also eyeing expansions, Masters continues, adding, "A mainstay is going to continue to be medical construction."

Impacts Of ThyssenKrupp

Some of Alabama's biggest construction news is tied to the $3.7-billion ThyssenKrupp steel mill in Mobile County. The mill will produce 4.1 million metric tons of flat carbon steel end products per year. Cold rolling and hot-dip coating capacities will also be included. In addition, ThyssenKrupp Stainless will build an electric steel plant with a capacity of up to 1 million metric tons of slabs per year, which will be rolled on the hot strip mill. A cold rolling facility is also planned, and a further 340,000 tons of stainless hot-rolled produced on the hot strip mill will be supplied to the ThyssenKrupp Mexinox cold rolling facility in Mexico.

The project will undoubtedly prompt related construction. In fact, the Alabama State Port Authority plans a new $115-million marine terminal to handle the steel slabs. It's scheduled to be complete three months prior to mill startup in January 2010.

Benefiting From BRAC

Base Realignment And Closure has been bad news for some areas, but ABC of North Alabama's Lorraine Lee notes that BRAC has brought significant opportunities to contractors in the Huntsville area. Lee cites a huge amount of work at Redstone Arsenal to prepare the base for expected growth over the next four years.

But the area is not putting all its eggs into one basket.

"We are really diversifying," she says, and the result is even more opportunities for contractors. High-tech centers such the HudsonAlpha Institute for Biotechnology, a four-story 260,000-square-foot facility, will undoubtedly draw more construction. So will the recently opened Bridge Street development, a "mixed-use lifestyle center" which includes 550,000 square feet of retail, office and hotel space.

There's work at Huntsville International Airport too. As part of an overall $26-million parking improvement project, Huntsville International Airport recently broke ground on a parking deck expansion that's adding more than 1,300 spaces to the existing deck. The parking deck expansion and other improvement projects are part of the airport's current $60-plus million terminal project. Expansion of concessions, security screening, passenger waiting area, and baggage claim are also included.

"It is unbelievable how much is going on here," Lee says.

Roadway Construction: Bright But More Funding Needed

Fueled by projects such as ThyssenKrupp and by general growth, Alabama's highway picture is bright.

"I believe we ought to have about $800 million in lettings," says Billy Norrell of the Alabama Road Builders Association, "and about 300 projects. That's 50 projects more than last year." He's "optimistic" that Alabama DOT will meet those projections.

ThyssenKrupp, in fact, should drive future road projects, Norrell says.

"There will have to be road work in the area," he says, adding, "The freight issue is going to be enormous."

Even so, he says, the highway industry is still "out there begging for money." Other demands have impacted dollars available for transportation construction, and the number of projects which available funding can cover has dropped as costs of materials, particularly petroleum, continue to increase.

"Roads and bridges have been kicked around for years," he says, adding that a move to index the state's fuel tax "so we don't keep losing ground" might be part of the solution.

Overall, he says, ALDOT "is doing a tremendous job of managing the resources that they have." He adds, "We just want road building in the state to have a bigger piece of the pie."

The Outlook: Bright, But With Caveats

Alabama's construction industry seems to be trending in the right direction. As Alabama ABC's Jeff Masters notes, Alabama contractors are "coming off the best couple of years in a long time, and it looks like there's more growth ahead."

How about the housing slowdown? Masters sees it not so much as a fall-off but rather as an adjustment from an overbuilt condition.

A much bigger problem, he says, is one of labor.

"The $64,000 question is what are we going to do for manpower?" Masters asks.

"Labor is the biggest problem we face," he says. "Unemployment in the state is at the lowest level it's ever seen, and everybody who wants a job has already got one." He's concerned over finding enough workers, adding that without adequate labor, "construction will come to a screeching halt."

Florida

Housing Decline Ripples

Recently, Florida has seen dramatic declines in home construction — and ripple effects have hurt some segments of the industry. But other market segments are seeing activity. For instance, some school systems are moving ahead with planned projects even though local growth is down. The reason? A depressed market pushes down construction prices, and school systems are taking advantage of that to build projects at substantial savings. By some estimates, savings on some projects could be 15 percent to 20 percent.

The same thing is being seen in parts of the commercial market. East Coast Underground's Tom Opfer, president of the Underground Utility Contractors of Florida, observes that developers eager to cash in on the savings are also moving ahead, building projects at significantly lower construction costs.

Underground Utility Contractors of Florida's Bruce Kershner adds that another factor may also be at work.

"For years," notes Kershner, "residential construction was going like gangbusters." The result was a large number of communities with lots of housing but not much else. Now, Kershner adds, with housing construction slowed, "we're starting to see commercial construction as 'infill' supporting developments that are already built."

Highway Construction

How does highway construction in Florida look for 2008?

"You could say it's a mixed bag," says Bob Burleson of the Florida Transportation Builders Association. "I think we'll have a good steady work program — just not the growth we've seen in the last few years."

Burleson notes "serious funding concerns" with gas tax revenues less than expected and a state work program that's been hit to the tune of about $1.4 billion over five years.

"We don't know yet which projects will be impacted," he says.

Burleson adds that recent bids "have been a little lower than estimates." That's good for FDOT, he says, but not for contractors.

Florida's highway industry is looking at some large projects in the future. One is a billion-dollar-plus undertaking on Interstate 595, the main east-west route into Fort Lauderdale from the western suburbs. The project, which will include widening and addition of toll lanes as well as much bridge work, should be let to bid by summer. Another, on Interstate 95 in Brevard County, is estimated at $400 million to $500 million and should be awarded sometime this winter.

But funding will continue to be a key issue.

"It's going to be a battle," Burleson says, "but I think we'll win."

Industry-Wide Concerns

In addition to concerns over impacts of the housing slowdown, Florida contractors face challenges ranging from labor supplies and the price of crude oil to the impacts of election year politics — not to mention issues such as the "Hometown Democracy" movement, which UUCF's Kershner says could lead to a "virtual moratorium" on construction.

Another challenge is the so-called "Lake Belt Issue," which impacts supplies of aggregate. The Lake Belt, a major source of limestone, covers about 57,500 acres west of Miami and east of Everglades National Park. Over the last four decades the area has produced about 50 percent of the aggregate used by FDOT, not to mention aggregate used on other projects. But environmental groups have questioned whether mines and quarries there should continue to operate, and the resolution of those challenges could impact material supplies and project costs.

In that sense, the state's construction slowdown actually has a faint silver lining — it has allowed stockpiling of materials. Hopefully those stockpiles could minimize impacts of future aggregate supply issues, at least until other sources could be located or permitted.

Georgia

In Atlanta, as in other parts of the southeast, homebuilding is off.

"But commercial construction generally lags residential construction by about 18 months," notes Mike Dunham of the Georgia Branch, Associated General Contractors, adding that 2008 should be "solid" for the commercial sector. An expected office building construction slowdown "hasn't happened yet" either, he says.

There is also ongoing work at Atlanta's airport. Hartsfield-Jackson is near the midpoint of a 10-year, $5.4-billion-plus capital improvement project said to be the largest public works project in the state's history. It includes a new Consolidated Rental Car Facility (CONRAC) scheduled for completion in 2009. Also, re-design of the Maynard H. Jackson International Terminal (MHJIT) is moving ahead. The terminal should be constructed and operational by late 2010 or early 2011.

Savannah, which expects to see a dramatic increase in shipping activity once Panama Canal widening is complete, could likely become the busiest port on the East Coast. That will fuel a significant increase in demand for warehouse space. Dunham notes that some estimate that warehouse space needs will increase more than 350 percent.

But there are concerns over impacts that factors such as congestion and inadequate wastewater systems may have on growth.

"And the drought-related water supply crisis could have a numbing effect if it causes communities to stop permitting new projects," Dunham adds.

As Dunham puts it, "We will have to evaluate where 2009 is headed."

On The Utility Front

In Georgia, notes Georgia Utility Contractors Association's Vikki McReynolds, indications are good for utility contractors who are prepared to deal with a changing market.

"The residential side has slowed down," McReynolds says, "and in mid 2007 those utility contractors working for residential developers saw things come to a virtual halt." She adds, "A lot of those that weren't diversified into other segments of utility construction didn't make it and are not in business any more."

On the commercial side, however, utility contractors are generally doing well.

McReynolds expects utility contractors to see plenty of water and sewer projects. But she notes that there will be greater numbers of contractors looking at that work. There will be "a lot of competition," she says, and developers and owners will have "many contractors to choose from."

"It will be survival of the fittest this year," McReynolds says. She expects the competitive edge to go to those who have diversified into multiple market segments and who "treat their clients right."

Highway Outlook

Georgia Highway Contractors Association's Steve Parks is generally optimistic about the highway picture in 2008. Georgia's highway contractors are coming off of a big year, he says, with about $2.5 billion in lettings last year and a 2008 outlook around $1.75 billion.

As elsewhere, the concern is funding. A recent TRIP report notes that Georgia faces a $51-billion shortfall through 2035 in funding for needed road, highway and bridge repairs and improvements. According to the report, $62 billion in highway funding will be available through 2035. However, GDOT estimates that $113 billion is needed during that time to complete highway and bridge projects that are on the existing transportation plans of state, regional and local agencies.

The report also found that increases in population and travel in the state have led to worsening traffic congestion, which threatens to reduce quality of life and impede economic development.

As Parks notes, "We are still obviously short of funds."

Cautious Optimism

The outlook across Georgia appears generally good for contractors who can deal with a changing market.

"The commercial construction industry in Georgia has a lot of momentum moving into 2008," notes Associated Builders and Contractors of Georgia's Bill Anderson, "thanks to the state's and metro Atlanta's diversified base of commercial development."

But Anderson cautions that there is still uncertainty.

"Unknown factors such as interest rates, oil prices, traffic congestion, drought conditions, and continued residential housing decreases could impact overall growth," Anderson says. "In addition, the political landscape at the Federal level may change dramatically with the 2008 elections, which could affect the economy in late 2008 into 2009."

Anderson anticipates a "moderate slowing with growth in single digits."

"Atlanta's office market still looks favorable for 2008," he says, "as does hospitality. Office occupancy rates could even reach 90 percent in some submarkets of metro Atlanta. The condo market and retail probably will lag behind its current growth starting by mid-year 2008."

He adds, "One positive factor is that land is still relatively economical compared to what is found elsewhere." In areas such as the Georgia 400 corridor, he says, this may help encourage growth throughout 2008 in retail and shopping.

"Buckhead also is seeing a lot of expansion in many mixed-use developments," Anderson says.

The downside is funding.

"The housing decreases and other factors will cause the state budgets to grow less in 2008 and 2009 due to a decrease in tax collections," he says. "This could eventually lead to a decrease in funding for transportation and other public work."

Tennessee

East Tennessee: Great Expectations

The housing market in much of east Tennessee, as elsewhere, is slow — and has been for some time. Historically, notes Roger Tudor of AGC of East Tennessee, commercial and industrial construction in that part of the state tends to follow residential construction by nine or 10 months. But he adds that that's not been the case. Indeed, he says, it's a "really exciting time" for many Tennessee contractors.

"Local architects are saying that their tables are absolutely full," Tudor says, adding that many of those projects are negotiated work.

Among the work Tudor notes that's going on or is planned in the Chattanooga area, for example, are the following:

  • Six school projects, including construction of two new $40-million high schools, are under way.
  • Talk of a $350-million expansion at a Chattanooga hospital.
  • The Corps of Engineers' letting of a cofferdam at Chick amauga, a step toward expansion of the Chicka mauga Dam.

"We also expect to see some new enterprises move into the Chattanooga area," he says.

Tudor gives credit to the leaders who he says "have placed us on the map as a progressive region."

"There is a lot of growth," he adds, "and a lot of building."

Middle Tennessee Looks Good

AGC of Tennessee's Bill Young is enthusiastic about the outlook for Nashville and central Tennessee.

"I've lived here all my life," he says, "and I have never seen construction like it's going on here now."

In Nashville, for example, Young points to a strong condo construction market. At one Nashville intersection, he adds, there's "going to be a condo complex on each corner."

Hotel construction is thriving in Nashville too, he adds, and there's even talk of a proposed $450-million downtown convention center. Major new residential marina complexes on the Cumberland River further brighten the picture, and recently completed malls in locales such as Murfreesboro, Green Hill and west Nashville will likely serve as magnets for future development.

"The market looks strong for middle Tennessee," he says.

On The Highway Front

"Can I say it's a cloudy day?" says Tennessee Road Builders Association's Kent Starwalt, addressing the highway construction outlook, and the reason for those clouds is inadequate funding. TDOT, he says, simply "doesn't have the funds to do the work that needs to be done." Reasons include a 42-percent increase in material costs since 2003, combined with the impact of federal recisions and the transfer of some $280 million from the state's road fund into its general fund over the last six years. The fact that '08 is an election year does not help either, he says.

It all combines, Starwalt says, to create "a perfect storm" for Tennessee's highway contractors.

There is some work going on, of course, and one of the most visible projects that will be active this year is the SmartFIX40 project in Knoxville. Phase III of the SmartFIX40 project, which will involve completely closing a portion of Interstate 40 for a period of 14 months to speed construction, will be under construction in 2008. However, this work is already under contract and does not represent new work for the state's contractors.

There's also the prospect of letting the last 10-mile section of SR840 this year.

Down the road, undertakings such as a study to identify improvements for the 550-mile Interstate 40/81 corridor between Bristol and Memphis should eventually generate work. The study is the first multi-modal (car, truck and rail) corridor planning project undertaken by TDOT and is the first step in implementing the department's recently approved Long Range Transportation Plan.

"Tennessee continues to experience increased demands on our interstates, especially I-40 and I-81, but funding levels are not keeping pace with our transportation needs," Commissioner Gerald Nicely has noted.

TRBA's Starwalt notes that TDOT is "making its case" in the pursuit of those much-needed funds.

"But unless we get a funding increase, we're going to see the program to continue to decline," Starwalt says. Some contractors are "struggling," he continues, adding, "If we don't get funding sooner rather than later, it could be ugly."

Year Transportation Sewer/Water Misc. Civil Total Hwy & Heavy Buildings* Grand Total
2006 7,154,762,373 1,862,798,823 1,270,382,610 10,287,943,806 29,345,026,320 39,632,970,126
2007 8,000,000,000 3,650,000,000 1,035,000,000 12,685,000,000 32,430,000,000 45,115,000,000
2008 6,710,000,000 3,250,000,000 1,150,000,000 11,110,000,000 33,750,000,000 44,860,000,000
*Does not include single-family construction

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