Builders Get Ready for Southeast Resurgence

Southeast contractors, beginning to sense genuine momentum in the region's building markets, are now looking forward to an upturn. But as data from ENR Southeast's latest Top Contractors survey shows, a broader regional construction market recovery remains mostly in the offing.

The survey's first indicator of a regional revival is seen in the response rate. Historically, the depth of the Southeast Top Contractors ranking has ebbed and flowed with the industry's own ups and downs. For the latest list, more than 110 firms reported their 2012 Southeast revenue, or about 20 more than participated a year ago, a sure sign of improving fortunes.

For example, cumulative 2012 regional revenue—in Florida, Georgia and the Carolinas—represented by this year's ranking increased by about 6% to $17.3 billion, up from $16.3 billion last year.

The numbers grow more mixed from there. For instance, this year's average revenue figure fell to $157.6 million, down from $179.25 million last year—and just ahead of the $153.6 million average of two years ago.

One possible reason for the declining average could be an increased number of firms participating with revenue below the average. However, among the current top 10 firms, year-over-year revenue declines were just as common as increases.

Market Gains

Despite the mixed data for 2012, contractors interviewed by ENR Southeast are optimistic about future construction opportunities.

Data from McGraw Hill Construction confirms that the volume of 2013 contracts is on the rise. The Southeast's two largest metro markets, Atlanta and Miami, are showing particularly impressive gains.

According to McGraw Hill—parent of ENR—Atlanta's construction market is taking off. Through May, the company says approximately $3.6 billion worth of new contracts have started, an estimated 80% improvement compared with the same five months of 2012.

Moreover, both the nonresidential and residential sectors are showing strength, with commercial projects up 83% compared with a year ago and housing up 76%.

In Miami—which actually started its resurgence in 2012—a similar, but different, recovery is under way. Through May, McGraw Hill estimates that $2.8 billion in new contracts have moved ahead, for a 36% jump compared with 2012.

But South Florida's revival skews more to the housing sector, which is 57% higher than a year ago, with more than $1.6 billion in new projects. Even so, the area's nonresidential sector is up, too, by 14%, with about $1.1 billion in new work so far.

The residential rebound has grabbed the attention of contractors across the Southeast, with several citing the housing recovery as the main factor fueling increased construction activity.

"The for-rent market has led the commercial construction industry out of the downturn," says Rob Taylor, regional president with Brasfield & Gorrie, Kennesaw, Ga.

While condominiums are surging in South Florida, the rental market is driving multifamily construction in the rest of the Southeast. Instead of being another bubble, though, Millard Choate, president and CEO of Atlanta-based Choate Construction Co., thinks apartment projects could keep regional contractors busy for awhile.

"Based upon demographics and a decline of confidence in single-family investment, I predict there is still a dearth of apartment supply and construction will continue for three to four years, or more," he says.

Mike Bartlett, executive vice president with JE Dunn Construction Group, Atlanta, also sees some longer-term strength for this project type.

"Multifamily appears to be here to stay, at least for the short term," Bartlett says, noting a variety of projects moving forward, including some student housing. "It seems to be the only private market lenders like."

Meanwhile, health care, one of the markets that has been among the steadiest for Southeast builders over the years, is now experiencing a changing dynamic due to the ongoing change in federal law.

"It's interesting to watch that [market] right now as everybody tries to get postured for 2014 and the [implementation of the] Affordable Care Act," says Taylor.

While some health care providers have slowed or halted construction programs, Taylor says, others are opting to expand, and consequently making big plans.

"It depends on where you are and who you're talking to," he says. "It's not like it was (recently) when every hospital would have a major expansion going on."

While market uncertainty persists, contractors interviewed by ENR Southeast agreed that increased material prices and a labor shortage are looming.

Choate, for example, sees an "erratic escalation of costs for commodities such as wood, drywall and concrete," mostly due to the residential rebound.

Brasfield & Gorrie's Taylor concurs, adding that commodities prices can vary significantly "from one day to the next."

As for the labor shortage, JE Dunn's Bartlett says: "The slowdown has thinned the pool of both labor and subcontractors. I don't think we will see a recovery of capacity, so a shortage will be in play for some time and that means higher prices."

The Ranking

ENR Southeast's Top Contractors list ranks firms based on 2012 revenue from projects in Florida, Georgia and the Carolinas. In addition to providing regional revenue, the main chart includes information about each firm's top markets as well as their biggest projects to break ground during the previous year. A series of breakout charts follows the main list, with rankings based on state and market sector revenue.

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