Posts Tagged ‘hospitals’

Signs of Confidence Sprouting in the Construction Industry

Tuesday, April 12th, 2011

The recent construction industry mantra of “Wait until next year” may be coming to fruition in 2011, according to a recent survey conducted by ENR.  The 1st quarter of 2011 Construction Industry Confidence Index (CICI) survey soared to 51 on a scale of 100, a significant increase from the 43 percent reported in the 4th quarter of 2010.  The rise marks the first time the CICI has risen above 50 since March of 2009 and provides hints of a market that is stabilizing.  The survey of 679 construction and design executives suggests that the market has hit bottom and should improve throughout the year.

The uptick in market confidence is in step with the most recent CONFIN-DEX survey conducted by the Construction Financial Management Association.  This survey of contractors, general contractors and civil contractors spiked to 131 from 117 on a scale of 200, said Mike Verbanic, the organization’s director of marketing.  The most encouraging statistic is the increase that measures current business conditions, which rose to 145 from 129, again on a scale of 200.  “What makes these indices doubly reassuring is that our members are not wild gamblers, so their responses are measured and based on conditions they see,” according to Verbanic.  CFMA’s survey found some bad news in the financial conditions index, which rose to 116 from 105.  “These indices show that CFMA members expect demand to increase, but that credit and project financing may lag,” said Anirban Basu, CEO of Sage Policy Group, Inc., an economic consulting firm.

Although relatively few survey respondents plan to start office construction projects anytime soon, the strongest sectors are hospitals and healthcare facilities; distribution centers and warehouses; multi-family residential; retail; hotels and hospitality; and entertainment.  Fully 27.6 percent of respondents said client access to credit is an ongoing problem, while 51.8 percent said that access to credit is easier now than just a few months ago.  An additional 20.7 percent believe that access to credit is easing.

Construction companies are concerned about the price of materials.  A significant 80.3 percent of respondents said they are experiencing pressure on the cost of materials and equipment.  The cost of steel, copper and gas were mentioned most often.  According to Basu, the Producer Price Index has shown substantial price pressure recently.  “The dollar has been softening recently and there is evidence that commodity speculators have become more active in the metals markets,” he said.

Suburban Office Vacancies Rise

Tuesday, July 15th, 2008

According to a recent Crain’s Chicago Business article, suburban office vacancy rates shot up to 13.1 percent during the second quarter of 2008.  That is the highest level in more than two years. According to the commercial real estate services firm, Transwestern Commercial Real Estate, the vacancy rate is at its highest level since the first quarter of 2006, when it rose to 13.7 percent.  There’s no doubt that demand for suburban office space is in lockstep with job growth or loss; we’re not seeing any job growth in the suburbs right now.

Class A landlords are more likely to accept lower rent deals right now than was true in the last year, but this can be risky.  This has the effect of also reducing the building’s value, because this is a function of the in-place income stream.  Sometimes, it is better to pass on a low rent deal and simply “assume” accepting a higher rent to protect the building’s value.

The sales market has been robust over the past several years, so protecting value has been a priority.  With credit now being largely unavailable, building owners are no longer in the sale market because buyers are unwilling or unable to pay top dollar.  Because we don’t know when the office market will stabilize and since selling isn’t viable at present, landlords may take that lower rent to boost occupancy.

A respectable number of transactions will be completed this year, but only because there is so much low-cost sublease space available.  Additionally, some industries are likely to make positive contributions to the suburban office scene.  Companies providing goods or services to hospitals, physician practices and the senior-housing market are experiencing growth, as are data-center operations and some engineering firms, especially those working with energy production or conservation.