Mixed signals

Steve Johnson has been looking for the right space to grow resale shop Plato’s Closet for about two years.

He was primarily looking at leased space, but a combination of location and lower construction costs put him in prime position to build a 9,150-square-foot facility for his business, which caters primarily to teen girls.

Material costs, which spurred Johnson’s decision to build, and an increase in national backlog numbers seem to suggest a positive move for the commercial building industry, which has struggled amid economic woes. At the same time, however, other national and local indicators, including industry unemployment and building permits, seem to point to a continued slump for commercial builders.

Conflicting data
Nationally, construction backlog rose 4.5 percent during first-quarter 2010 to 6.07 months, compared to 5.81 months during fourth-quarter 2009, according to Associated Builders & Contractors Inc.’s Construction Backlog Index. The index measures the amount of construction work under contract to be completed in the future.

MoDoCo Inc. owner Morris Dock said he saw some evidence of that project uptick in the local market in the first quarter, but it has since slowed.
“We were seeing the same a month ago, we got real busy and had a lot we were working on,” he said. “Now, those projects are on hold. People are nervous about the stock markets.”

Other ABC data shows a potential bright spot, with nonresidential construction spending down just 0.1 percent from April to $571.7 billion in May. While that does show that the downward slide has stopped, however, nonresidential construction spending is still down 15.2 percent from May 2009.

Another ABC analysis shows a bleak job outlook, with 4,300 jobs dropped from the commercial building sector in June, bringing U.S. construction unemployment to 20.1 percent for the month, compared to a national unemployment rate of 9.5 percent.

The light at the end of the tunnel may come from business owners like Johnson, who said the availability of a prime location near the Battlefield Mall and low costs cemented his decision.

“The availability of land in that shopping corridor is rare,” Johnson said.

General contractor Wirt-Flavin Construction Co. Inc. is building his retail site, which is scheduled for completion in October.  

Cost comparisons
MoDoCo’s Dock said he’s not seeing many new construction projects these days, and all five of his company’s current projects are renovations.

City of Springfield building permits seem to indicate MoDoCo isn’t the only company seeing more renovations than new starts. Through June, 21 new commercial building permits totaling nearly $21.7 million were issued, compared to 17 permits totaling $35.7 million issued through June 2009. But there were 155 commercial addition and renovation permits worth an estimated $31.9 million during the first six months of 2010, compared to 108 permits worth an estimated $35.3 million for the same period in 2009.

Dock said some of the motivation to renovate rather than build new is due to an infrastructure that is already in place.

“Basically, you already have a shell,” Dock said. “You can probably buy cheaper and renovate cheaper than it would cost to build.”

Cheaper, however, is relative. While Dock estimates a current project’s total construction cost would come in about 30 percent lower than the same project would have cost two years ago, partly due to material costs, national numbers suggest that those expenses are inching upward. According to an ABC price analysis, the cost of construction materials and supplies has been rising for seven months.

During May, total construction materials prices increased by 0.7 percent, and costs are 5.9 percent higher than they were compared to May 2009.

“There has still been a lot of fluctuation in materials costs,” said David Ross, director of operations at Morelock-Ross Builders Inc., adding that now is a good time to take advantage of reasonable costs. “(Prices are lower) now than they will be two years from now.”

While Johnson said he would probably have been able to cover the costs related to the 9,150-square-foot building under construction at 1258 E. Battlefield Road two years ago, he feels as if he’s getting a much better deal now. He’s paying approximately $1.6 million for the land and construction, he said, and expects his monthly occupation expenses to be comparable to what he pays to lease 3,000 square feet of retail space from Kimco Realty Corp. in Primrose Marketplace.

He said Plato’s will occupy 6,150 square feet of the new building, and he plans to open a second store, Clothes Mentor, applying the Plato’s resale concept to clothing for women.

Owner occupancy
It may be that the commercial turnaround hinges on owner-occupied projects. Ross said his company’s 13 most recent new construction projects have been owner-occupied, like Johnson’s, and the company isn’t working on a single speculative commercial project right now.

Johnson said owning his building, which was financed by Bank of Bolivar, just makes sense for him.

“I’m not in the development business, but when I saw that piece of land just sitting there empty, I needed to see if I could make it work,” Johnson said. “There’s no risk involved for me, since I’m the tenant.”[[In-content Ad]]