Contractors optimistic as industry takes small steps forward
Building permit data from the city of Springfield’s Building Development Services office show a slight uptick in commercial building jobs – and a higher project dollar volume, which has left some contractors feeling optimistic about what the future holds for the local building industry.
Factoring in commercial additions, renovations and new construction, there were 122 building permits worth an estimated $81.3 million January–April, compared to 96 permits worth roughly $34.4 million for the same period in 2010. Though conditions are a far cry from the pre-recession boom years – city data shows 451 commercial construction, renovation and addition permits, worth a whopping $207 million in 2005 – industry leaders see the latest numbers as a positive indicator.
“Locally, there are companies picking up work,” said Rich Kramer, president of the Springfield Contractors Association and Rich Kramer Construction.
“The environment is very competitive right now, the most competitive I’ve seen it, even in the early 1980s during that recession.”
Kramer attributes the slight recent growth to a mix of public and private projects.
“Missouri State University and Drury have contributed to the public projects, and banks and churches continue to flourish,” he said. “It’s interesting in the downturn that banks continued to build, but I would think churches are to be expected as people turn toward their faith.”
Signs of growth? New data from Associated Builders and Contractors also holds some promising signs, as ABC reported May 17 that commercial construction was one of only three major industry sectors to report increased backlog. The construction backlog indicator for the first quarter of the year averaged 7.3 months, up 4 percent from the 7.1 months reported for fourth-quarter 2010. The CBI is a forward-looking indicator that measures the amount of construction work under contract.
But just as the local numbers show, this data, too, suggests it could be awhile before the region reaches pre-recession construction levels – if it ever does.
“While the commercial and industrial construction industry is no longer in deep decline, meaningful recovery remains elusive, with CBI still below levels associated with vigorous nonresidential construction activity,” said ABC Chief Economist Anirban Basu, in a news release. “However, crisis conditions have abated, and the indicator is moving in the right direction. CBI is now 33 percent above its historic low point of 5.5 months registered in January 2010.”
Kramer declined to disclose his company’s backlog, but he said his crews are finishing three major projects – a $1.5 million addition to Digital Monitoring Products in Springfield, a $900,000 addition and remodel to the Greene County highway maintenance facility, and a $1.5 million Tractor Supply Co. store in Fairfield, Iowa. Each is expected to wrap up in the next month.
The company also is working on eight smaller projects and submitting bids on several others. Kramer said his next big project could be worth at least $4 million, but he declined to disclose details.
“We hope to capture between $10 million and $12 million in projects by the end of the year, 75 percent of them being in the Springfield area,” Kramer said.
Cost concerns A separate ABC report shows that the costs of construction materials increased in April, continuing what the organization says seems to be an ongoing trend. The U.S. Department of Labor’s Producer Price Index report for April shows construction materials, including metal and steel, concrete and crude oil prices rose by 1.4 percent in April and are 7.1 percent higher compared to costs a year ago.
While costs increased for some products, including steel mill products, nonferrous wire and cables, and fabricated structural metal goods, other materials, such as plumbing fixtures and fittings, remained flat year-over year, the report said.
Kramer said he believes tightened lending standards, which have affected appraisals and made it harder for companies to borrow money for construction, is slowing local industry recovery more than higher materials costs, and Kenny Ross, co-owner of Morelock-Ross Builders, agrees.
“Everyone pulled back on capital spending. So much was unknown and financing was and is more difficult to obtain,” Ross said.
The fact that materials costs are rising shouldn’t discourage people from completing capital projects, Ross said.
“Generally speaking, the cost of construction is still less than it was in 2007. It’s still a good time to build in comparison to pre-recession pricing,” he said.
“As the market comes back, prices will trend back up, and (for) business that can get capital to spend, this is a good time to do it.”
Ross continues to be optimistic and notes that the overall mood in the building industry seems to be on the upswing. Optimism, he said, can help propel overall economic recovery.
“Pulling us out of the doldrums is as much about that improvement in the mood and optimism in the marketplace as it is about having the capital because there were some companies that had the capital that were just afraid to move,” he said.
Ross said Morelock-Ross has $15 million in projects under way and at least six to eight months worth of work that will keep the company operating at or near capacity.
“The backlog is slightly up from this time last year,” Ross said.
The company’s biggest project is a $2.5 million addition to the Regions Bank building on Battlefield Road to house law firm Aaron Sachs & Associates PC, set for completion in the fall.
Also under way for Morelock-Ross is a 3,000-square-foot Great Southern Bank Branch on South Campbell Avenue and a 28,000-square-foot retail strip center set for completion in June adjacent to Walmart Supercenter in Ozark.
“That project is already more than 50 percent leased and is a good example of a successful project that is anchored by a Supercenter,” Ross said. “But the speculative development at standalone locations is really just still nonexistent right now and will be for a long time.”[[In-content Ad]]