Construction Economic News

Reed building starts fall, civil works rise; bid prices skid; commercial vacancies jump

April 10, 2009

The value of nonresidential building starts plunged 23% in March, while civil works starts jumped 15%, Reed Construction Data reported on Thursday, based on data it compiled. Comparing the first quarters of 2009 and 2008, building starts fell 8% in value but 18% in square footage. The value of the largest building category, schools/colleges, was unchanged, but retail fell -16%, hospitals/clinics, -1%; and office, -25%. Civil works rose 28% in value, with gains of 2% for roads/highways, 11% for water/sewage, 96% for miscellaneous (including power projects), and even larger jumps for the small airport and dams/marine categories.

"Construction firms are so eager for work in the sagging economy that project bids are coming in much lower than expected, allowing state and local governments to stretch their federal stimulus dollars further," the Washington Post reported on Wednesday. "At Baltimore-Washington International Marshall Airport, a recent project to reconstruct the area around Piers C and D received six bids instead of the usual two or three. The result: The estimated $50 million project will be built for $8 million less than was budgeted, and the savings will be allocated to other projects. There were 21 bidders for a $200,000 drainage project in Carroll County [Maryland], more than anyone could remember….In Virginia, state officials are receiving bids from companies as far away as the Ohio Valley. Projects that typically would have drawn four or five bids are receiving 10, said Byron Coburn, state construction engineer." The Arkansas Democrat-Gazette reported on Thursday, "Bids…were tentatively accepted Wednesday on 27 highway-resurfacing projects tagged as the first state road jobs to be funded under the American Recovery and Reinvestment Act of 2009. [Bids] came in under forecast Wednesday. The latest cost estimates from the state Highway and Transportation Department said the projects would cost $23.75 million. The apparent low bids totaled $21.2 million, nearly 11% under the original estimate."

One factor contributing to lower construction costs is lower trucking rates. "Two regional less-than-truckload carriers announced across-the-board pay cuts because of deteriorating freight volumes and prices, Saia Inc. by 5% for salaried employees and drivers, and Ward Trucking Corp. by 8.9%," TTnews.com, the online version of the trucking newspaper Transport Topics reported on Thursday. Both companies said executives' pay was cut even more." On Monday, the Energy Information Administration reported that the national average retail price of on-highway diesel fuel was $2.23 per gallon. That was an increase of 18 cents from the low point four weeks ago but was $1.73 (44%) less than a year ago and $2.54 (53%) less than the record set on July 14. Last year, contractors were paying stiff diesel fuel surcharges on trucking deliveries, as well as high prices for the diesel fuel they used in their own trucks and offroad equipment.

Vacancy rates rose and rental rates fell for apartments, retail and office space in the first quarter, according to three reports in the Wall Street Journal, citing statistics from Reis Inc., a New York real-estate research firm. For "the nation's apartment market…the vacancy rate for the top 79 U.S. markets jumped to an average 7.2%, a full percentage point increase over the past two quarters and the highest level since the first quarter of 2004," the Journal reported on Wednesday. "Rents fell sharpest in markets that saw heavy job losses in the financial-services sector, posting declines of more than 2% in New York, Long Island, San Francisco and San Jose….Rents increased in Miami and St. Petersburg….Markets that experienced the greatest increases in vacancy rates last quarter included Austin, to 9.2% from 7.5%; Fairfield County, Connecticut, to 6% from 4.3%; and Knoxville, to 7% from 5.3%." A companion article reported, "The amount of occupied space in U.S. shopping centers and malls declined a net 8.7 million square feet in the first quarter…, more than the total amount of space retailers gave back to landlords in all of 2008 and any other year in recent history. [The vacancy rate] in the top 76 U.S. markets [rose] to 9.1% in the first quarter from 8.3% in the previous quarter….The vacancy rate, which began rising slowly in 2005 then accelerated in 2007, is now at its highest since the 1990s." On April 3, the Journal reported Reis data that showed companies "dumped a near-record 25 million square feet of office space in the first quarter, driving vacancy up and rents down….The office vacancy rate nationwide rose to 15.2% from 14.5% in the previous quarter….supply is being dumped on the market [from layoffs] more than 50 million square feet of office space is expected to be emptied out for the full year, projects Reis."

 "Home builders are reporting a substantial, unambiguous rebound in demand for new homes in March-the first such glimpse of light in more than three years," www.econoplay.com reported on Thursday, summarizing conversations with builders in several regions. "And with land, labor and materials costs so cheap right now, builders are regrouping and appear more willing to ramp up new construction….Robert McLeod, CEO of Newland Communities, the largest privately held residential property builder in the nation, [said], 'A lot of projects for new single-family homes are being built in Virginia, North Carolina and Texas, although Texas always did well for us.'…'March was my best month in the last 18 months. At the end of May we will know if it's a trend,' said an upper Midwest builder….The rush is toward a 'narrow category' of homes priced from $175,000 to $225,000. 'That's a very low price for our area,' the source said. 'It means that the only people in our market are first-time buyers and divorcees.'" But the article also quoted developers in New York and metropolitan Washington who report no uptick yet.