How will construction look in the Southeast in the new year? Here's a look at what some in the industry are saying.

What's the word for construction in the Southeast in 2007?

In some parts of the country the word may be "slowdown," but most agree that that's not at all the case in the Southeast.

Across the region, there is optimism about what the new year holds for the construction industry. Highway programs look good. Commercial and industrial development is thriving in many areas. School construction looks to be strong. Health care is bright. Planned communities are in the works. And all of it brings all sorts of related construction ranging from roads and infrastructure to housing and all that that implies.

So the short answer is this: Overall, the word is "good."

The Big Picture:
To understand the construction outlook for the Southeast, it's helpful to start with a look at some aspects of the national picture. For example, what's the big picture like on the highway side?

Over the first nine months of last year, said Ken Simonson, chief economist for The Associated General Contractors of America (AGC), highway and road construction was up.

"Highway and street construction was up 16 percent," said Simonson.

But looking down the road there may well be cause for concern unless action is taken in some key areas.

Steve Massie, senior vice president of the Associated General Contractors of America (AGC) and chief executive officer of Jack Massie Contractor, Williamsburg, Va., recently testified before the National Surface Transportation Policy and Revenue Study Commission in New York, N.Y. In his testimony, Massie declared that the current system is failing, the highway trust fund is in precarious financial shape, and the buying power of trust fund dollars is significantly eroded by inflation.

"According to AGC's Chief Economist Ken Simonson, since early 2004, the financial viability of all types of construction projects has been jeopardized by sudden, steep and generally unanticipated price spikes affecting numerous key materials," said Massie. "No construction segment has been affected as much as highways."

The Bureau of Labor Statistics (BLS) shows that the consumer price index for all urban consumers (CPI-U), the most widely used measure of inflation, has varied only moderately over the past three years. Meanwhile, highway construction materials costs, represented by the price index (PPI) for highway and street construction, have risen three to four times as fast each year. Furthermore, the data show the change in the CPI-U from September 2003 to September 2006 was 9.6 percent. The cumulative change from September 2003 to September 2006 was 35.9 percent, nearly quadruple the general rate of inflation over three years.

"We have material price inflation eating more than 30 cents of every dollar in just the last four years and the growing threat that the cost of labor, which has been relatively stagnant over the same four-year period, will begin to rise," warned Massie. "We also have the danger that the highway trust fund could run a significant deficit in the near future. This convergence will exacerbate the funding gap and our ability to meet the needs of our already congested and deteriorating highway system."

Massie called for the creation of a revenue commission, similar to that of the postal rate commission, to fund surface transportation investment that would meet regularly, evaluate revenue options and establish a levy for the coming year or two.

Massie also suggested the idea of creating dedicated state trust funds to be used for highway improvements. He said the funds should be firewalled like the federal highway trust fund so that revenues are only used for transportation purposes. He believes the federal government should establish an incentive or penalty provision that would withhold a portion of the state's annual apportionment if they do not establish a dedicated fund.

"Any of these options will be a step towards meeting our looming national needs," said Massie.

Steve Parks of the Georgia Highway Contractors Association, like many industry observers, notes that it's likely that the spotlight will begin to turn toward the future of the federal program this year.

"The debate will ramp up this year," Parks says.

And how is it for non-highway construction?

"Nonresidential construction spending climbed to its 13th consecutive record in September, showing that the homebuilding slide hasn't carried other segments downhill with it," AGC's Ken Simonson said recently.

"Census said that seasonally adjusted construction spending slipped 0.3 percent in September, the third straight monthly drop," Simonson observed. "But nonresidential construction rose 1.1 percent, the 15th monthly rise in a row and the 13th record." Unfortunately, he adds, that wasn't enough to offset a 1.1-percent monthly drop in residential construction, which has fallen since peaking last March.

Overall construction spending, and private nonresidential construction, looked good for the first three quarters of 2006.

"In the first nine months of 2006 combined, overall construction spending was up 6.6 percent from the same period of 2005," Simonson stated. "Private nonresidential construction spurted ahead 17 percent, public construction rose 10 percent and even residential eked out a 1-percent gain."

The numbers for major private-sector growth categories on a year-to-date basis were also generally good. These included lodging (hotels and resorts), up 48 percent compared to January-September 2005; multi-retail (general merchandise stores, shopping centers and malls), up 37 percent; hospitals, up 25 percent; and manufacturing, up 23 percent. Simonson added that multifamily construction was up 18 percent over that period, as an upsurge in rental construction has helped offset a recent decline in condo building. Additionally, educational construction showed a 7-percent gain, while sewage and waste disposal construction was up 20 percent and transportation facilities construction was up 7.5 percent.

"Nearly all of these categories should continue growing over the next year," Simonson concluded. "I believe the economy is still fundamentally strong, and the housing slide will have limited impacts on other segments."

But Simonson added that a bigger concern is that fast-rising materials costs have forced cancellation or delay in many projects.

"Cost increases should moderate in the next few months," he said, "but materials costs will still outrun overall inflation."

To be sure, throughout the region, an ongoing concern continues to be the increasing cost of materials. Contractors are experiencing significant increases in the cost of key materials such as concrete, steel and asphalt, and that has greatly complicated the matter of budgeting and contracting. Hurricane rebuilding efforts have further stressed material supply chains.

As construction costs rise in light of these pressures, however, some developers are actually responding by moving planned projects into the construction phase sooner than they might otherwise have done. The reasoning is that such projects will only cost more if prices and shortages continue to escalate, so starting projects now is actually seen as a cost-saving strategy.

How does it look on a state-by-state basis? Dixie Contractor has been watching what may lie ahead and talking with a number of key industry observers about what they see in the future. Here's a look, state by state, at some of the things that we found.

Alabama:
According to many industry observers, many sectors of the Alabama construction economy are set to enjoy a very good year in 2007. There is good news on many fronts, with many significant projects planned.

As Jeff Masters of Associated Builders and Contractors of Alabama puts it, "I expect there to be more opportunities in Alabama than we have the manpower to take care of."

Some of those opportunities, Masters says, will result from the large number of new industries locating in the state.

"The governor has announced 20 new industries which will be locating in the state over the next year," he says. Many, he adds, are tied to the auto industry, which continues to be a driver in Alabama's construction economy. Others that he notes include a new billion-dollar-plus steel mill.

There is also good news in office construction, he says, thanks to pent-up demand for additional office space in some parts of the state.

Masters also points to hospital construction as a market that's likely to do well in the state in the new year.

"Just about every hospital has expansion plans, or plans new construction, in the new year," he says.

He also sees work ahead at Fort Rucker and at the Redstone Arsenal. Following changes brought about by the base realignment and closure program, the number of military bases dropped — but Masters notes that "the Feds are pouring money into the ones that are left," adding that this includes major expansion programs at both of those locations.

All of this means increases in the demand for electrical power — and even more construction work will come as the Southern Company updates generating plants to meet regulations, Masters says.

In Alabama, as in some other parts of the Southeast, developers are discovering the value of reconstruction — whether in the wake of hurricanes or as a way to give old properties a new lease on life. In areas of Alabama that were affected by the recent storms, for example, rebuilding has in many cases yielded facilities that are bigger or better than before. Consider the Grand Hotel Marriott Resort, Golf Club & Spa in Point Clear, Ala., a structure which has survived wars, fires and hurricanes since 1847. After the resort was closed for several months after Hurricane Katrina, half of The Grand reopened in April 2006. The complete resort, including the resorts meeting space, reopened last November. The resort's ballrooms have been completely renovated and are grander than ever, said David Clark, the Grand's general manager.

Another example of hotel reconstruction is the Battle House Hotel and Tower, set to open this spring. Originally built in 1852, the Battle House hotel is located in downtown Mobile. The hotel closed its doors in 1974 and quickly became dilapidated. Bought by the Retirement Systems of Alabama, the hotel has undergone a painstaking renovation and is now attached to a new tower, equivalent to 41 stories, and the tallest building in Alabama and along the Gulf Coast from Tampa to Houston. The Renaissance hotel and tower are scheduled to reopen in April 2007 at a cost of more than $200 million. Meanwhile, two blocks away from the Battle House, the Riverview Plaza is undergoing a $50-plus-million renovation inside and out and will also be flagged as a Renaissance hotel.

Whether new construction or renovation, who will construct these projects? ABC of Alabama's Masters notes that in the wake of recent hurricanes, many Alabama contractors (especially commercial and industrial contractors) have found plenty of opportunities in neighboring states. This, he says, pulls labor from the Alabama market — and that puts the spotlight on what Masters considers to be one of the major challenges facing the state's construction market in the future.

"I would warn the contractors in Alabama about one thing," Masters says. "If you're not making plans to meet your manpower needs in the future, you need to start work on that today."

A related challenge, he adds, may come in the next few years as shrinking labor supplies push hourly labor rates to as much as $50 an hour in some crafts. Masters notes that contractors who are not prepared for that shift may find themselves in trouble, particularly on long-term projects where contracts do not include adjustment factors for increasing labor costs.

Even in the face of these concerns, most agree that the overall outlook for Alabama is definitely a positive one.

"There a number of particularly bright spots on the Alabama construction horizon," notes Henry Hagood of Alabama Associated General Contractors. "We have eight very distinctive construction markets in the state, and all eight look like they will have a fair amount of construction going on."

By way of example, Hagood cites Jefferson County's $1 billion in school bonds.

"This has been on the books for a couple of years," he says, "with money and interest accumulating. Now, with legal challenges cleared up, the program is going to start giving money to school systems immediately."

He also notes that hurricane-related construction continues to be a factor in the Alabama construction market.

"There is still a lot to be done," he says, adding that some of the remaining construction needs go as far back as Hurricane Ivan.

Hagood adds that a number of post-hurricane rebuilding projects are being put on hold because of high materials prices.

"For example," he says, "concrete prices have gone through the roof."

Hagood also expects auto industry-related construction to continue to have a positive impact on the state's construction picture. Even the Kia plant, located just across the state line in Georgia, is expected to have a significant impact on Alabama construction, Hagood says.

"We will continue to see spinoff work from companies who have to locate within a certain distance of the major plants," he says. "And that will result in something of a domino effect, since those companies will bring other companies that work for them, and so on. And as the industrial base grows, as you populate an area with new industries, you'll also see shopping, commercial construction, utility construction, and other construction coming to the area."

A key factor in Alabama's overall construction picture is road and highway construction — and in Alabama, the highway outlook also appears to be good. Billy Norrell of the Alabama Road Builders Association sums it up when he says, "We foresee continued good times ahead for the whole industry in the state." Noting that the state awarded more than $700 million in projects last year, he adds, "If the pattern continues, we believe that things will continue to improve."

Norrell notes that this year will be the first year after an election, and he adds that that is "usually the best time for funding." Federal funding also continues to flow into Alabama — "Our delegation takes good care of Alabama," he says — and he adds, "Alabama is on a roll."

Indeed, most observers are looking for "continued good times" for the state's highway contractors. The current work program looks promising — and looking even further down the road, there may well be some major projects ahead too. For example, there is continued talk about the proposed extension of I-85 to the Mississippi line, with study money now available. Also on the radar are I-22 from I-65 to near Jasper, including what's been called an "enormous" interchange at I-65, plus a new I-10 bridge in Mobile to alleviate traffic in the Wallace Tunnel.

Continuing increases in construction costs may impact the number of projects that can be built, Norrell notes, adding that this makes continued funding even more important. But overall he affirms that things are looking bright for the state's highway builders.

"It's really a great program," he says.

Alabama AGC's Henry Hagood adds that one benefit of the state's road program will likely be an upswing in new commercial, industrial and utility construction along some of the state's highways.

"Highway 157 from the Shoals area to Cullman is getting closer to being completed," Hagood says, "and work continues on U.S. 432 from Columbus, Ga., to Dothan. And we have finally completed four-laning 280 from I-459 to I-85. We expect to see more new construction along those routes in the future."

Overall, Hagood reflects the expectations of many industry observers when likens the state's overall construction outlook to a desirable weather forecast.

"I'd say we are expecting more of the same good conditions we've had," he says, "and we don't see any storms coming."

Florida:
If you consider the states in the Southeast, Florida quickly emerges as one where construction is strong. Population continues to grow at a dramatic rate, and in recent years as much as 70 percent of the state's construction activity has been in the residential market, which of course fuels other segments of the state's construction economy. But many feel that the residential construction market is cooling somewhat. How long that cooling will last, and exactly what its impact on other market segments may be, is still unclear — though there is general agreement that its impact on sales tax revenue, a major source of income for the state, may make itself felt down the road.

Currently, the state's transportation construction picture is strong.

"The outlook for highway construction in Florida is good," observes Bob Burleson of the Florida Transportation Builders Association. "We will continue to have a solid program, probably with state DOT spending between $3 billion and $3.2 billion."

That number puts FDOT spending levels on par with those seen in recent years. And with local governments looking at perhaps twice that amount, the total combined transportation construction outlay in the state should be in the neighborhood of $9 billion or more.

The FDOT project list is impressive too. Particularly notable is the upcoming design-build project on I-75 in Collier and Lee counties, a project that will be built under a single contract estimated to be in the $450-million to $500-million range. Some contractor financing will also be part of this job. The project is set to be let in February.

There are a number of other noteworthy FDOT projects ahead as well. Here's just a sampling:

In FDOT District 2, highway contractors can look for interchange work at I-295/I-95/SR 9A North, a project with an estimated value of $43.8 million that's set for letting in April, plus a $43-million project (set for February letting) to add lanes to SR 202 from west of Kernan Blvd. to San Pablo Road.

In District 3, the FY 06/07 project list includes, among others, construction of new lanes on SR 79 from Steel Road to Washington County line ($26.6 million).

Notable District 4 projects for FY 06/07 include new lane construction on SR 7/U.S. 441 from south of the Dade County line to north of Hallandale Beach (estimated at $23.4 million, and set to let in April).

In District 5, major FY 06/07 projects include adding lanes on I-95 from south of SR 514 to south of SR 519, including the Pineda Interchange. Set for January letting, this one has an estimated value of more than $165 million.

Among the projects in District 6 are replacement of the SR 7/NW 5th Street Bridge from NW 3rd Street to NW 6th Street. This $42.7-million project is set for the February letting.

In District 7, a major $72.5-million project set for letting in February will add lanes to I-275 from Himes Avenue to the Hillsborough River. Also notable is a $55.3-million project to add lanes to U.S. 301 from Balm Road to Gibsonton Drive, set for June letting.

FDOT's Turnpike Enterprise also plans a number of major projects in the months to come. One noteworthy undertaking will be construction of additional lanes on SR 91 from SR 400 to Beulah Road. Set to let in March, it has an estimated price tag of $136.8 million. Another major Turnpike Enterprise project, this one set to let in June, also adds lanes to SR 91 — this time from Atlantic Blvd. to the Sawgrass Expressway. The estimate for it is $83.8 million.

Another project that continues to draw attention is the proposed tunnel linking the Port of Miami with the mainland and I-95.

"There is much pressure to build it," notes FTBA's Burleson, adding that the cost of this public-private venture will likely be "in excess of a billion dollars."

Overall, in the words of a release from the state governor's office, funding for transportation in Florida "reinforces the governor's goal to diversify Florida's economy, develop growth management plans to support emerging infrastructure and strengthen families by improving the quality of our communities."

"The governor's record funding level for transportation benefits Florida's families, visitors and businesses by moving people and goods more efficiently," said Florida Department of Transportation Secretary Denver Stutler recently. "The budget also continues the funding for the implementation of landmark growth management reform."

Notable components of the transportation budget for FY 2006–2007 (which runs July through June) include $2.6 billion for development of the Strategic Intermodal System (SIS). This program, which has been called "the state's top transportation priority," focuses on "critical highways, airports, seaports, railroads, and other key transportation assets [which] are the catalysts for Florida's future growth and the diversification of our economy" and "have also proven critically important to Florida's recent disaster response efforts and the economic recovery of those areas hardest hit by the 2004 and 2005 hurricanes."

Also noteworthy is $1.1 billion for implementation of Growth Management Reform.

"The department is in the process of implementing the landmark growth management legislation signed into law during the 2005 Legislative Session that included $542 million in funding, which provides $1.1 billion in product in 2006–07," the release noted. "Recognizing that Florida's infrastructure has not kept pace with growth and with more than 1,000 new residents moving to the state daily, this 'pay-as-you-grow' system bases decisions for new development on the ability of Florida's communities to provide adequate infrastructure."

The budget also provides continued emphasis on the development and use of Intelligent Transportation Systems (ITS) to better manage traffic flow, along with implementation of the department's transit plan, which will "maximize and leverage state transportation dollars to attract greater federal funding for public transportation."

Additionally, the budget includes more than $647 million for land purchases in anticipation of future projects.

Challenges facing the Florida construction arena, as in other parts of the Southeast, include finding adequate labor. As homebuilding slows, there is the potential for former workers in that market segment to migrate to transportation or building construction.

Slowing homebuilding may also ease material prices. Some materials have been in short supply, impacting progress on some projects, and soaring materials prices have actually resulted in FDOT's to rejection of several recent bids.

"But those projects will be bid again," FTBA's Burleson adds.

On the building side, much has been made in the news in recent months of a slowdown in Florida's residential construction market. Most feel that numbers are indeed off a bit, but one industry observer commented that the decline is from previous highs and added that some decline may actually be "a good thing" that could ease pressure on currently strained labor and equipment resources.

There is no doubt that Florida continues to be viewed as a destination of choice for retirees. Many feel that projects such as the recently completed Lansdowne Terrace senior apartment complex in Tampa, a four-story, 160-unit project with a price tag of close to $10 million, are likely to continue to have an impact on the state's construction picture for some time to come.

John P. Wiseman, president of CORE Florida, contractor on the Lansdowne Terrace project, has said, "Florida is experiencing greater demand for quality senior housing than perhaps any U.S. state, and as the baby boom generation nears retirement age this demand will be a critical need."

Retiring baby boomers are one reason why Florida's population is expected to double over the next 25 years, Wiseman said.

"We are going to see enormous pressure to design, develop and build quality housing for seniors on a huge scale," Wiseman said. "We are already seeing new lifestyles — today's seniors are far more active, healthier and longer-living than our grandparents' generation — and we are likely to see new building technologies and lifestyle changes that shape the design of senior housing," he said.

Of course, Florida's continued bright construction picture is good news for utility contractors throughout the state.

"We're blessed being down here in the Sunshine State," notes Bruce Kershner of the Underground Utility Contractors of Florida. "We still have an influx of new residents, with more and more retirees coming to Florida. But we are still far behind on our infrastructure. We have an aging infrastructure, and it's being challenged. We need to take a look at upgrading existing facilities and at new facilities as well.

"Overall," he adds, "that's going to bode well for construction, and for utility construction specifically."

Kershner adds that in recent years there has been strength in just about all market segments in the state. He specifically noted St. Johns and Flagler counties, which are proving popular retirement destinations that are "picking up" as constructions markets as a result. The Panhandle, too, is another good part of the state from the construction industry's point of view.

"And we have Orlando, Tampa, Fort Myers, and Naples, and south Florida," he adds.

"I think what we've got in Florida, and historically what we've always had, is a good public and private market for utility construction," notes Kershner. "But I see the private sector, specifically homebuilding, slowing down." He adds that it may take the first half of 2007 for that market to level out and perhaps head back up.

For now, Kershner says, one result of that slowing on the homebuilding side is that some contractors are shifting their focus to the public sector.

"We have member firms have been staying out of the public sector for years," he says, adding that those firms are now exploring new markets.

If there is good news in the slowdown, Kershner adds, it may well come in the form of an easing of pressure on industry labor suppliers.

"Whether it's unskilled labor, semi-skilled labor or skilled labor," he says, "we just haven't had the folks we need. If there's a silver lining, decreased pressure on labor supplies might be it."

Similarly, he continues, an easing of demand might benefit areas where materials have been in short supply.

"It may give us a chance to catch our breath," he says, "and could be a blessing in disguise — for a little while."

Across the state, there are a number of major developments in the works — projects that should fuel various segments of the state's construction economy for some time to come. For example, Magna Entertainment Corp. and Forest City Enterprises, Inc. have received final approval from the city of Hallandale Beach, Fla., for the development of The Village at Gulfstream Park, paving the way for a planned spring 2007 groundbreaking for Phase 1 of the 60-acre, master-planned lifestyle destination. The Village at Gulfstream Park is located in the heart of the Miami, Dade, Broward, and West Palm Beach area, one of the fastest-growing regions in the United States. The Village at Gulfstream Park, to be built around MEC's premier thoroughbred racetrack, will offer fashion and home accessory shops, destination retailers, restaurants, outdoor cafes, entertainment options, and a residential live/work environment. The first phase will include 375,000 square feet of lifestyle retail, featuring 70 upscale shops and specialty stores and 70,000 square feet of office space. It is expected to be up and running in fall 2008. The Village at Gulfstream Park, to be built over 15 years, calls for 1,500 condos, 750,000 square feet of retail space, 140,000 square feet of office space, a 500-room hotel, and a 2,500-seat cinema. The project will involve the construction of 225 workforce-housing units both on the site itself and in neighborhoods within the city. When complete, it is expected to generate more than $22 million in taxes and create more than 2,800 permanent jobs.

Georgia:
For Georgia's construction industry, the outlook for 2007 is at the very least very good — and many think it's even brighter than that.

As Mike Dunham of the Georgia Branch, Associated General Contractors, puts it, "It looks wonderful."

"The work projections through 2007 are quite high," Dunham says, "and contractors are talking about larger than normal backlogs into 2007."

A variety of factors are helping to brighten the picture, including special purpose local option sales taxes and various bond programs.

"Public entities will continue to be a big factor," Dunham says, citing by way of example SPLOST- and bond-funded school construction programs that should bring more than $2 billion in school construction to four metro Atlanta counties.

"There is an additional $265 million in school work in Richmond County," he adds, "and there are pockets like that all over the state."

Corps of Engineers work looks bright as well, Dunham adds.

"The corps tells us that there will be more work put out to bid than at any time since World War II," he says.

All indications are also pointing to continued growth in Atlanta's commercial construction market in 2007, says Bill Anderson, president, Associated Builders and Contractors of Georgia (ABC).

"One of the strongest markets continues to be mixed-use developments," Anderson says. "It seems every day you read about another mixed-use development in Atlanta." Anderson cites one example of a recently announced mixed-use development — Allen Plaza in downtown which, when completed, may be as large as nine blocks — and adds that other mixed-use developments are being planned in the suburbs in addition to downtown Atlanta.

Overall, the downtown office market still shows potential, although this segment has softened, Anderson says. The speculative office market, according to comments Anderson has heard, seems to have weakened significantly in Atlanta. He adds that retail, while still steady, will likely slow since residential housing is slowing somewhat.

According to Anderson, two bright spots in Atlanta's commercial construction market are higher education and apartments.

"Recent expansion and renovation announcements by Emory University, Georgia State University and Georgia Tech are in the billions of dollars," Anderson stressed. "These are massive projects even for a large market such as Atlanta."

Brett Fortune, principal of Atlanta-based Fortune-Johnson General Contractors, and chairman of ABC of Georgia, concurs that Atlanta's apartment market will be very strong in 2007.

"It should be no surprise that with rising interest rates new apartment construction will be on the rise," Fortune says. "However, an increase for apartments will likely mean an easing market for condominiums."

Fortune, whose firm specializes in multifamily housing, says his firm's backlog of new work through 2008 is one of the strongest it has been in the company's history.

Ports also continue to be a factor in Georgia's growth picture, and the Georgia Ports Authority's (GPA) board of directors recently approved a series of construction and new equipment contracts that will significantly increase container handling capacity at the Port of Savannah.

"The Georgia Ports Authority is growing faster than any other port authority if its kind in the nation," noted Senator Mack Mattingly, chairman of the GPA board of directors. "The contracts ... will allow Georgia's ports to continue to stay one step ahead of the growth curve, provide our customers with the best service possible and increase our economic impact throughout Georgia."

Four contracts will help the state's ports to meet growing demand for container handling and storage. Those contracts include $3.7 million to demolish a warehouse and install seven acres of heavy-duty asphalt pavement and related infrastructure; $1.5 million to purchase 15 spreader bars for Rubber Tired Gantry cranes recently purchased to enhance operations within existing port terminal facilities; $700,000 to purchase four spreader bars for ship-to-shore container cranes; and $900,000 to complete the acquisition and assembly of four ship-to-shore cranes.

Doug J. Marchand, executive director of the Georgia Ports Authority, recently noted that several new shipping services and especially new "express" services were gaining market share and bringing new business to Georgia.

"This new type of 'express' service has a 22-day transit time from Shanghai to Savannah and is the wave of the future for Georgia's trade with China," he said. "And this new wave is going to bring additional waves of new business."

How big is the impact? Georgia's deepwater ports and inland barge terminals support more than 275,968 jobs throughout the state annually and contribute $10.8 billion in income, $35.4 billion in revenue and some $1.4 billion in state and local taxes to Georgia's bustling economy. Such numbers can only mean good news in the future for the state's construction economy.

Office construction is definitely on the upswing in the Atlanta area. By many accounts, the amount of office space under construction in the city has at least doubled in the last year or so. More than 3 million square feet of office space is being constructed in the city, though it's far from the 8 million square feet of office space construction that the city saw in 2000 or the 7 million square feet in 1990. Office vacancy rates have fallen somewhat, though they are still significantly higher than those seen in 2000.

With Atlanta's continued popularity as a destination and as a place to do business, it's no surprise that hotel construction is looking bright as well. By some estimates, close to 40 new hotels will be constructed in Atlanta over the next several years, as hotels once again gain favor with investors. Among the projects is a 28-story W Hotel, with 237 rooms and 76 condominiums, plus 10,000 square feet of meeting space and various amenities, which is set to open in Atlanta in 2008.

Georgia's commercial and industrial construction picture remains bright as well. Several high-profile projects are in the works, including a facelift for the Georgia Dome — a project with an estimated cost in excess of $30 million. In addition to repainting of the Dome's exterior, the project scope includes construction of new suites as well as remodeling of existing suites. The concourse and entries will be renovated, and expanded video screens will be installed.

Also being talked about is Prospect Park, a $1-billion development in Alpharetta. The development will ultimately include some 850,000 square feet of retail space; two mid-rise office buildings plus additional office space located above retail shops, for a total of 350,000 square feet of office space; and entertainment facilities including a 75,000-square-foot cinema. The project also includes a $100-million 142-room hotel as well as 82 condominiums. Opening of Prospect Park is expected in the fall of 2008.

On the industrial and manufacturing side, the list of noteworthy projects includes a new ethanol plant in Mitchell County, a project of First United Ethanol LLC (FUEL). The plant, which is being built on a 268-acre site between Pelham and Camilla, should be in production in 2008. This is one of several such projects proposed or under construction in the state. Georgia Governor Sonny Perdue has proposed a sales tax exemption for equipment and materials used in the construction of such biofuels facilities in the state.

Also noteworthy is a new Xella International plant set for Adel, Ga., a facility which will produce autoclaved aerated concrete construction materials. The plant should be operational this spring.

Some of the most noteworthy news on the Georgia industrial construction scene is the new Kia Motors plant which is being built in West Point, Ga., on a site located along I-85. Ground was broken for the $1.2-billion plant, which will be Kia's first auto assembly plant to be located in the United States, late last October. The plant is expected to open in 2009 and will produce 300,000 cars a year. The plant itself is a major project, of course, but the construction industry should see many other benefits from the deal — including construction of a $20-million technical school at the site, construction of a $6-million rail spur and upgrades to the nearby I-85 interchange. Additional work will come as contractors are called on to build facilities for related industries which will certainly spring up in the vicinity of the site.

How does it look for the highway construction segment of the industry?

According to Steve Parks of the Georgia Highway Contractors Association, the new year "looks pretty good as far as the highway program goes."

Parks notes that rising costs of some key materials, as well as increases in right-of-way costs, are having an impact on how much construction can be bought for a given amount of expenditure.

"Increases in costs have affected how much work is let," he says, and are thus having an impact on the number of projects and amount of work that can let within a given budget number. For example, Parks notes that the STIP program will likely sustain at about the same dollar level as seen in the past, though it is likely that some projects will have to be taken out because of increasing costs.

Parks notes that what he calls "big-dollar projects" seem to be becoming more of a trend, due partly to those cost increases. But he expects the number of mega projects, such as the enormous contracts let recently, to moderate.

Overall, Parks looks for a "good and steady" program in the year to come. Last year, he notes, the state program was on the order of $2.25 billion.

"I don't think they can sustain that level," he said, but he added that he still expects to see a "larger than normal" program in the year to come.

There are a number of specific areas drawing attention on the highway front. For example, the Georgia Department of Transportation is continuing its focus on I-285 corridor congestion. The Atlanta Regional Commission's (ARC) Mobility 2030 Regional Transportation Plan (RTP) identified several new capital improvements for I-285, including the addition of HOV lanes and the reconstruction of several existing interchanges. GDOT has also initiated Revive 285 that will initiate improvements along the northern section of I-285 from I-75 to I-85. The data and recommendations from the I-285 Strategic Implementation Plan will be utilized as part of Revive 285, and both projects will be closely coordinated. According to GDOT, "A countless number of improvements are planned and programmed along the top end of I-285, and the list keeps growing."

Evidence that toll roads are becoming established in the motoring public's conscience comes from a recent move by the Georgia State Road and Tollway Authority (SRTA) to team up with the AAA Auto Club South as partners on a campaign to "bring added value to new AAA customers by providing them with the Cruise Card which enables a quicker, safer passage on the Georgia 400 Extension by utilizing the electronic toll lanes." The Georgia 400 Extension links the Buckhead area of Atlanta with Georgia 400 north of I-285, and those who remember the initial discussions years ago of building the Georgia 400 extension as a toll road recall that the toll concept was not at first well received. Currently, however, most agree that the concept of toll roads is no longer hard to accept — and there is continued discussion of future toll facilities in years to come.

Most agree that much of this coming construction activity — in every segment of the state's construction industry — will ultimately depend on having an adequate labor force.

"If there is a downside, it's the workforce," notes Georgia Branch, AGC's Dunham, adding, "Labor continues to be an extreme issue for almost all contractors." A possible result, he adds, is that some owners may not be able to build projects since contractors simply may not have the workforce with which to build them.

All of this activity will certainly boost the demand for utility construction in many parts of the state.

"We're wide open with utility work in Georgia," says Vikki McReynolds of the Georgia Utility Contractors Association. Development across the state will continue to drive the need for utility construction, she says, adding that the state's utility contractors are seeing work from one end of the state to the other.

"In the past, the work might have been concentrated in the metro Atlanta area," she says. "But now we're seeing pockets of development throughout the state." She cites Macon as one promising area, adding that more work should come as new planned communities in south Georgia and elsewhere move ahead.

In many parts of the country, the talk is of a slowdown. But McReynolds, like many industry observers, does not see a slowdown affecting the Georgia construction market.

"Instead, we may be seeing a leveling off," she says. "Maybe the reason that everybody else is slowing down," she adds, "is that everybody is moving to Georgia."

Tennessee:
In Tennessee in 2007, many eyes will be on the state's highway program. A quality transportation system is a key driver of economic development, and Kent Starwalt of the Tennessee Road Builders Association expects that the new year will see levels similar to those experienced the year before.

"TDOT did about $750 million in lettings last year," he says, "and we're looking for them to do about the same in 2007."

There is also good news with respect to the state's road fund.

"The governor has indicated that he is not going to raid the road fund this year," Starwalt says, and the result could be more than $30 million in additional funding.

There is also talk of public-private ventures, of design-build projects and of toll roads in the state.

"If fuel prices stabilize or come down," Starwalt says, "we think we will continue to see things get better."

There are several big projects that may come up in the new year, including work on Interstate 40 at White Bridge Road in Nashville and work on the I-40/I-240 interchange in Memphis. Additionally, the 840 project may be let, he says, adding that each of these would be very large projects.

"But we have been pushing the department to do smaller projects," Starwalt adds, "so that more contractors can bid on them. We are hoping that they'll be letting more moderately sized projects in the future."

Starwalt notes that Tennessee has not felt the housing slowdown to the extent that some other states have experienced it, and one result has been that private road construction should continue to do well in the state.

Generally, Starwalt says, the highway outlook is good in Tennessee. But he does express concern over some of the ratios in TDOT's 25-year plan.

"They have identified a $2-billion need over the next 10 years," he says, "but we have concerns over how the money is allocated." He notes that the allocation for transit projects increases from 10 percent to 35 percent, while the allocation for highway projects drops from 90 percent to 55 percent. In the long term, he says, the view is that those numbers are "not smart thinking in a time when they're talking about congestion."

One of the hot spots undoubtedly continues to be the Nashville metropolitan area. From the intown area (where a new $455-million convention center is being discussed) to surrounding communities (where developers continue to eye large tracts for residential or retail development), Nashville seems positioned as the hub of what could be a major and long-term growth boom.

Indeed, downtown development in Nashville continues to be in the spotlight. For instance, Atlanta developer Barry Real Estate Co. wants to construct a 28-story office tower there. Preliminary plans call for 22 floors of office space to be built atop six levels of parking. In addition to office space, the building would include restaurant and retail space.

Downtown residential development has long been a major factor in cities such as Atlanta — and now it looks like it's coming to Nashville too. In the past, Nashville has not been known as a city where downtown residential construction was a major factor on the construction landscape. However, developer Anthony Giarratana continues to fuel interest in residential construction with the recently announced Signature Tower project in Nashville's intown business district. Signature Tower will be the tallest building in Nashville. With a 200-room hotel located on the bottom 10 floors and some 400 condo units above, the $275-million project should break ground early this year and should be completed by 2009. The Signature Tower project, when finished, will have a height surpassing Atlanta's tallest structure, prompting some to wonder whether Nashville may eventually be challenging Atlanta as the up-and-coming place to be in the Southeast.

Nashville is also looking at redevelopment options for the city's riverfront area, with two options being presented last August.

Of course, projects such as these will only continue to boost the number of visitors and business travelers coming to and through Nashville. To help deal with the increase, the Metropolitan Nashville Airport Authority has begun a five-year renovation of the Nashville International Airport. The contract for just under $37 million for the first phase of the program was awarded to Bell Construction. The three-year project will renovate the airport's terminal and includes construction of a consolidated security checkpoint flanked by "shimmering water walls," local and national food/beverage and news/gift concessions, a new HVAC system, waiting areas, two 12-foot flight monitors, and additional skylights.

The impact of growth in the area extends out from Nashville itself, and nearby areas such as Murfreesboro are benefiting. For example, the Joe B. Jackson Parkway south of Murfreesboro, which connects I-24 and Manchester Pike, is being talked about in many quarters as a magnet for development, drawing not only interest from residential developers but also from corporate, industrial, warehouse, and other developers as well. One developer called the atmosphere in the area "positive" for development and growth. In addition to corporate offices and schools, other possibilities that are being discussed for the area include department stores, hotels and amenities such as theaters.

Another nearby area which continues to be one to watch is Franklin, where development is also a hot topic. Tracts that were formerly zoned for agriculture are being placed on the market, where they are being picked up by eager developers and earmarked for future projects. There's been interest expressed in land not only for residential development but also for related development including shopping, schools and even golf courses. This will fuel not only building and utility construction but also, without doubt, road construction as once-rural roads are upgraded to deal with much greater traffic counts. Those who keep an eye on the state's industrial construction picture are cautiously optimistic too. Tenants are leasing existing space, and some developers are looking at plans to expand existing facilities in some areas. But many are concerned that increasing construction costs (particularly from increasing costs of materials) will continue to outpace inflation, cooling some of the enthusiasm where new construction or renovation are concerned.

And in Clarksville, prospects for industrial construction look good. The Clarksville-Montgomery County Economic Development Council, in fact, has been selected as one of four community economic development agencies to be the first participants in "The Valley Targeted and Prepared Community Program," a new initiative offered by TVA to help communities enhance their current economic development efforts. The program was designed and will be administered by Boyette Levy, an Atlanta firm which provides strategic advice and communications support in the areas of economic and community development.

Chattanooga, too, is seeing some significant projects, including BlueCross BlueShield of Tennessee's new Cameron Hill corporate campus in Chattanooga. The new Cameron Hill corporate campus will include 12 acres and will replace space that BlueCross BlueShield owns or leases in multiple buildings around Chattannooga. The campus will have five buildings with 950,000 square feet of office space and a 1.4-million-square-foot parking garage. Also included are outdoor park areas for the more than 3,000 employees who will be located there. Cost of the project is estimated at $189 million. Construction began there late last year; the project is scheduled for completion early in 2009.

Across many parts of the state, higher educational construction continues to do well in Tennessee too. For example, Vanderbilt University has more than $150 million in construction under way with more than $10 million in additional projects in design. At The Commons, on the Peabody campus, completion of the dining facility is estimated for August 2007, with completion of residence halls phase II set for August 2008.

In light of the region's expected growth, it comes as no surprise that health care construction could face a good market as well. In Murfreesboro, for example, Middle Tennessee Medical Center plans to replace the Murfreesboro hospital. The hospital wants to build a new 286-bed facility of nearly 600,000 square feet, with shelled space to handle anticipated future growth, on a tract of close to 70 acres in Murfreesboro's Gateway area. Project cost is estimated to be in the neighborhood of $280 million and will include, in addition to the hospital, outpatient diagnostic and surgical facilities as well as medical office buildings. Other notable health care projects include a major expansion at Sumner Regional Medical Center, a project with a price tag of more than $80 million which includes almost 200,000 square feet of new construction.

Clearly, if things go well, Tennessee is looking at the prospects of some strong markets ahead. But all of the construction isn't going to be directed strictly toward major developments. Recognizing the need for recreation, the state is providing a number of parks and recreation grants. In middle Tennessee, for example, these include $400,000 for a nature center and visitors center at the Stones River Greenway, another $400,000 for park and trailhead development in Ridgetop in Robertson County, and more than $200,000 for Springfield for further development at Martin Luther King Jr. Park. Grant money is also going to the city of Burns, in Dickson County, to acquire land for a municipal park, and to the city of Franklin to fund development of the Harpeth River Greenway trail at Bicentennial Park.

By Steve Hudson
January 1, 2007
Dixie Contractor