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‘Recession hangover’

Virginia’s construction industry is slowly rebounding

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Even though he’s seen a slight uptick in activity in the past nine months, John Lawson, president and CEO of W.M Jordan Co. in Newport News, remains cautiously optimistic about the growth of commercial construction in Virginia. “It’s not a huge increase,” he says, “but it is a definite trend.”

The Construction Confidence Index released by the Associated Builders and Contractors in August revealed that the first quarter of this year showed promise, thanks to nationwide progress in commercial construction sales prospects, staffing levels and profits. By the second quarter, however, all three of those measurements declined, dashing hopes for a quick industry rebound. Analysts and industry executives still believe construction spending will increase, but growth will be slower and more gradual than originally anticipated.

There is work, but “the level of profitability is not there yet,” says Jeremy Bardin, executive vice president of HITT Contracting in Falls Church. “The volume of opportunity is increasing, but the fees are still very competitive. We still have recession hangover. We’re coming out of it, but it’s not a quick trajectory. There’s still a lot of uncertainty.”

The industry also is seeing a lot of churn, and interested developers are testing the market. Still, many are waiting to make a commitment until after November. “In an election year, we typically see some hesitation until things even out,” Bardin says. “We are hoping for action after the election.”

The uncertainty of the economy, with concerns ranging from volatile energy prices to tax increases and federal spending cuts, has a major impact on the industry. “Until we get some level of comfort where federal finances are headed, people are not comfortable about spending money on buildings or structures,” says Jeff Boehm, vice president of Winchester-based Howard Shockey & Sons, Inc.

Contractors are concerned not only about their own fiscal strength but also the viability of their subcontractors. “We want everyone on this team financially solvent,” Bardin says. “There is a lot of stress in the subcontractor community.”

Competition in the industry is growing as companies begin broadening their geographic imprint. “National firms have come into the area and started offices,” says Bardin. “That has increased competition.”

While budget cuts made it tough to get the go-ahead for public-sector projects during the past year, private-sector projects such as office buildings, restaurants and recreational facilities posted an increase this year. “The two offset each other,” says Sika Henry, who does market research for Newport News-based Ferguson, the largest wholesale distributor of commercial and residential plumbing supplies in the U.S.

Interest in public/private partnerships has grown because companies have easier access to capital than public agencies. “It’s a great way for a public entity to work with a private entity,” says Boehm. “We are working on our eleventh public/private project. It’s a great delivery method.”

Henry of Ferguson estimates that commercial construction spending will increase about 1 percent this year and about 7 percent in 2013. From 2013 to 2014, she forecasts a 30 percent increase in spending, especially for projects such as public schools, hospitals and nursing homes. “The manufacturing sector will pick up in the next two years as well, and hotels and motels are now picking up a lot,” she says.

Industry sectors that show promise include retirement communities, long-term-care facilities and multifamily housing. “We also are seeing increases in higher education and medical,” says Lawson, pointing to Jordan’s projects at Radford University, James Madison University, University of Virginia and Christopher Newport University where the firm is building two dormitories and a chapel. “It’s the first chapel at a public university in the country that has been built in the last 50 years.”

Geographically, the Richmond area and Northern Virginia are the two hottest commercial construction markets in the state.  “The Richmond market feels very healthy,” says Chad Radcliffe, general manager of Ferguson in Richmond, noting that and Capital One both have projects in the works. “There is a lot of dialogue with contractors, developers and private owners.” 

In Northern Virginia, Capital One Financial Corp. has submitted plans to the Fairfax County Planning Commission to build a mixed-use development with more than 4 million square feet on the company’s 26-acre site at Dolley Madison Boulevard and Old Meadow Road. The site is home to the financial service company’s headquarters as well as athletic fields and parks. The plan proposes up to 12 new office buildings, high-rise-apartments/condominiums and ground-level retail establishments as well as a hotel. It’s part of a larger transformation under way at Tysons Corner that is changing the corporate office and retail center into more of an urban community.

Commercial construction in Northern Virginia also is getting a boost from the Dulles Metrorail project, which eventually will bring the Metrorail to Fairfax and Loudoun counties. Phase one is scheduled for completion next year. “That will help development going west,” says Peter Lanfranchi, senior vice president at HITT.” The western areas are desirable to developers, and the counties are trying to foster more dense development around Metro stops.”

In fact, Virginia has about $14 billion worth of transportation projects under construction or in the procurement process, thanks in large part to a $4 billion transportation package passed by the General Assembly last year.

Industry growth is more difficult now than in the past for contractors and developers because of changing technology and more complicated projects. “There is a lot of three-dimensional modeling and green building to LEED [Leadership in Energy and Environmental Design standards],” says Lawson. “You have to be a leader in change and continue to look for opportunities to improve all of your operations.”

Boehm believes it’s going to take a while for the economy to turn around. “I don’t think there is any magic with the election,” he says. “I do believe [the industry] has stabilized, and we are seeing a slow ascent, increasing from now to 2015. We’ve found the bottom and now we are finding the way back up.”
With that disclaimer, here are a few of the major projects under construction in Virginia:

Central Virginia: — $150 million
Two new fulfillment centers will be open this fall in Chesterfield and Dinwiddie counties ahead of the holiday sales season. Amazon invested a total of about $100 million in its new 1 million-square-foot center in Chesterfield’s Meadowville Technology Park, according to Garrett Hart, assistant director of economic development for Chesterfield. The Chesterfield location, built by Marietta, Ga.-based Conlan Co., will create 1,000 jobs as well as an additional 2,000 seasonal part-time jobs. Construction began in December 2011. It should be operational this month. The Technology Park is also home to a $150 million data center being built for Capital One that is scheduled for completion in 2013. The project will create at least 50 new jobs. also invested $50 million in its fulfillment center in Dinwiddie County, creating 350 jobs. The center is being built by Missouri-based Clayco Construction.

Northern Virginia:
Mosaic — $500 million
Real Estate developer EDENS is developing Mosaic, a 31-acre, $500 million mixed-use development in Fairfax. The 2 million-square-foot project includes retail and office space as well as luxury town homes and apartments. Phase 1 of the project opened in September with 500,000 square feet of space, of which 350,000 square feet is retail. Phase 1 is 95 percent leased. Anchor stores include Angelika Film Center & Café and Mom’s Organic Market. Phase 2, scheduled for completion by fall 2013, is under construction and includes 112 town homes and 780 apartments located above ground-floor shops. The new urban center is located at Lee Highway and Gallows Road.

Hampton Roads:
Norfolk court complex — $121.6 million
Contractor Archer Western and architecture/construction firm Heery International started work in February on Norfolk’s new $121.6 million court complex, which is currently in the steel framing stage. The first phase of the project — an eight-story building — is scheduled for completion during the first half of 2014. The second phase 3 a five-story wing —will take until 2016 to complete. The wing is the current home of the General District Court, which will move into the Phase 1 section in 2014 after its completion. The new complex, at the corner of St. Paul’s Boulevard and East City Hall Avenue downtown, will house Juvenile and Domestic Relations, General District and Circuit courts. When completed, the complex will have a total of 315,000 square feet with 21 completed courtrooms and three shell courtrooms. It replaces facilities that date to the 1960s and ‘70s. 

CRE Interiors:  BCF, 4500 Main St., Virginia Beach Town Center, Virginia Beach  

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