As the Springfield market prepares for an upcoming commercial building boom, many contractors are turning to work outside the city during the interim.
Commercial building permits inside Springfield city limits are down 6 percent this year through September compared to the same time last year. However, county permits are soaring, up 20 percent during the same period.
On the residential side, both Springfield and Greene County have seen a rise in permits, with the county’s September figures up 25 percent over the same month in 2012. However, Greene County Building Regulator David O’Dell doesn’t anticipate that rate to continue.
O’Dell expects the county’s year-to-year residential permit increase to level out at 10 percent to 12 percent. Through September, 271 single-family dwelling permits have been issued, compared to 176 during the first three quarters of 2012.
O’Dell expects a similar percentage increase of about 10 percent to the county’s commercial permits, which he attributes to building additions and new churches.
Residential O’Dell said the increase in residential permits issued by the county is a result of the variety of lot types available outside of the city, a notion Morelock-Ross Builders Inc. Director of Operations David Ross agrees with, noting the company continues to build speculative houses in anticipation of future homebuyers.
As banks begin to issue more loans, more homes will be needed, and Ross said Morelock-Ross’ spec building has remained consistent in recent years, with almost all new construction taking place outside of city limits and in neighboring counties.
“Nixa has been our busiest market,” he said, noting not only is the demand higher in Christian County, but also the houses in the Nixa area tend to be larger, at 2,500 square feet or more.
Ross said Greene County has more vacant land available than inside Springfield city limits, a fact that hasn’t gone unnoticed by others in the industry.
Butler, Rosenbury & Partners President and CEO Geoffrey Butler said the correlation between the decrease in renovations, within both the commercial and residential sectors, and the increase in new residential construction isn’t a coincidence. Butler said new residential construction inside the city is often constricted to areas where old residences are torn down and replaced with new ones, aka infill construction.
Butler said the mindset of many new owners is, “I’ll buy that for the value of the land,” to then tear down the structure and rebuild as new construction can often cost just as much as renovations if “the bones are old and bad.”
“I think we’ll continue to see more of the infill and/or renovation work in the downtown area to save the character,” he said, but speculated the next area to see major infill and renovation work would be along old Business 65 and North Glenstone Avenue.
Commercial While speculative housing has been picking up in recent years, DeWitt & Associates Inc. Senior Vice President Jerry Hackleman said commercial speculation building has taken a turn as “supply has met the demand.”
“Unless there is a specific need, there is no spec building in commercial,” he said, noting there are a lot of vacancies already available with existing office space.
According to real estate market tracker Xceligent, after surveying the a 6.3 million square feet of office inventor in Springfield, Strafford, Rogersville, Ozark, Nixa, Republic and Willard, the sector’s vacancy rate was reported at 10 percent, down from 10.7 percent in third-quarter 2012. Last quarter’s office vacancy rate also was well below the 15.7 percent national average.
In the Springfield-area market, 629,718 square feet was reported vacant during the third quarter, while 735,009 square feet was listed as available. Quarterly net absorption was recorded at 31,215 square feet, pushing the year-to-date total to 38,090 square feet, according to Xceligent.
“After at least five years of a near standstill in the hotel construction industry and the pentup demand, there is a lot more ability to finance projects, so hotels are coming back,” Butler said.
Though residential properties are being permitted throughout the county, O’Dell said commercial permits are typically granted to building taking place closer to city limits.
The need to be close to the city, but not inside, might be linked to the resources required to take open land or vacant property and rezone it to fit the needs of a commercial buyer.
Butler said builders might be prompted to look outside the city as there is a lack of properly zoned, shovel-ready land within city limits that would encourage and permit for new development.
“There is a lot of pent-up demand and no land ready to go,” he said, noting the complexity of and risk associated with rezoning, as well as the time it takes to get the land prepared for construction, has contributed to the difficulties in building within the city.
The cost to rezone real estate can rack up thousands, if not tens of thousands of dollars, and can take several months before gaining approval or losing the case – and the money spent on it, Butler said.
“For example, a 10-acre piece of property took four months to get to a point where we could build on it,” he said.
Butler said rezoning costs raise skepticism in buyers seeking property within the city that is typically priced to sell. County land doesn’t typically have such hangups.
“It’s a damper to people thinking about going into town,” Butler said.
Oftentimes, he said, sellers will leave the rezoning costs up to the buyer without budging on the asking price. Rather than spend the money and risk a loss, many are more comfortable looking on the outskirts of the city.
Ross said he believes the commercial market will likely increase in 2014, after Morelock-Ross recorded a soft year of construction in 2012. Billings were $18.9 million, down 44 percent from $34.2 million in 2011. Morelock-Ross currently has a $51 million project backlog, according to Springfield Business Journal list research.
“I think 2014 is going to be a pretty good year – commercial for sure is looking pretty good,” he said. “Residential is still marginal … interest rates are going up, which may be a bit of a deterrent, though people might be more apt to move now before the rates go up more.”
Hackleman agreed, saying consumer and lending confidence have contributed to the demand for construction, adding the bottleneck of lending and construction created by the recession may be reaching equilibrium. DeWitt & Associates ranked No. 2 on SBJ’s commercial general contractors list billing $68 million in 2012, up from $63.6 million in 2011. The company currently has a backlog of just more than $50 million.
Hackleman points to a number of projects issued permits at the end of 2012, but not completed until 2013, such as Missouri State University’s Plaster Center for Free Enterprise and Business Development, that might have influenced the city’s permit numbers.
“The economy is picking up, and people are building,” Butler said. “Many people need to build to expand their business, and they’re searching for property.”
This installment of Springfield Business Journal’s Architects & Engineers Project Report showcases 26 endeavors by area design and engineering professionals.
