Browse Tag: Construction

Construction: The Employment Crisis (Almost) Nobody Talks About

Commercial development without skilled construction workers is a recipe for no development whatsoever. Yet the country’s educational system appears to be failing the construction industry – along with commercial real estate.

The system seems content to allow millions of students at for-profit colleges to be simply fleeced and abandoned, no more employable than they were before going into debt for their education. This is the for-profit education industry’s choice: a grab for the short-term, subsidized buck over the long-term benefit to the student and to the country.  Rather than orient itself toward trade education that actually meets the demands of the wider economy, the secondary educational system’s choice to turn away from the trades appears to have placed it on a direct collision course with the needs of the commercial development industry. Those needs are near all-time highs: the latest employment forecasts from the US Department of Labor say that the national need for these workers ranks higher than the needs for workers in all other categories save one (heath care).

Annotated table showing construction job growth

Programs To Patch The Gap

Correcting the course isn’t going to be automatic, or even easy. Construction mogul Bill Gilbane’s piece in Commercial Observer highlights the gap between industry needs and trade education by talking up investing in programs that address high school students in the funnel for careers in construction and design. Gilbane sings the praises of the Ace Mentor Program, an afterschool program that brings high schoolers into careers in architecture, construction management, engineering and other disciplines.

Beyond programs like Ace, development and real estate firms have opportunities to address the issue on their own.  As Gilbane writes about his company’s internal efforts:

But we must still do more to bring young people onboard and keep them long term. In order to meet future demand, we need to develop the pool of workers in our industry now. Developing the skills of younger professionals helps create our leaders of the future.

That is why we launched a two-year Management Candidate Acceleration Program (MCAP). The MCAP program allows younger employees to gain first-hand experience in each department at Gilbane Building Company and once they’ve completed the program, participants are prepared to step up into those roles full time—and their paths often lead to project or executive management.

This is essential to ensuring current young professionals become our next generation of leaders. It also supports our long-term employees on a path to continuous improvement. By providing technical and educational programs, we help our staff learn new skills to support their current roles and develop their leadership abilities.

These educational and mentoring models — both external and internal — are worth looking at, throughout the commercial real estate and construction industries as the economy surges forward.  Let’s not let “business as usual” today serve to shut down huge business and employment opportunities in the future.

Rising Labor Costs Means Higher Construction Costs For 2015

According to Chicago’s award winning Leopardo Companies annual industry report Construction and Economics Report and Outlook, the low price of oil is reducing the cost of construction.  Unfortunately at the same time, a lack of skilled labor and heightened demand is increasing construction costs.

Leopardo reports that nearly 25% of the skilled construction workforce has left the industry since 2008.  Older workers are retiring and fewer younger workers are entering the trades than in the past. Several contractors and subcontractors have closed since the downturn, too. This leaves fewer skilled laborers to handle the level of work, which is at pre-recession levels currently.

Current, historically low interest rates are helping to fuel an increase in construction activity. In Chicago, large-scale projects in the office, retail and multifamily sectors are leading the boom.  Chicago examples include the expansion of McCormick Place, 3,000 new residential units in the downtown area are to be built in 2015 (that’s up from 5,000 over the last two years) and the redevelopment of the Fulton Market Cold Storage building for Google. All are taking advantage of lowered costs and all are challenged in general by the crunch in skilled labor at the same time.

Is the construction cavalry coming?

Contrasting the downbeat labor news are national numbers for the sector. Even though the costs are increasing and staffing is a challenge, the US Bureau of Labor Statistics said in their April 2015 report that, “Construction added 45,000 jobs over the month.  Employment in construction has grown by 280,000 or 4.6 percent over the year.  Specialty trade contractors added 41,000 over the month.  This growth split between residential and non residential specialty trades.”

This is great news for the new commercial development industry because the increased costs and scarce labor resources don’t seem to add up to a dampening of the the ongoing growth in the commercial real estate sector.

The United States Census Bureau reported that commercial construction projects in New York, N.Y. hit $20 billion dollars in 2014.  Dallas and Houston are right behind New York with over $11 billion in commercial construction projects during 2014.  Even with its challenges, the future is looking bright.

Avoiding The Con In Construction: Kia Ricci At NAR Expo 2014

Developers and commercial property managers and owners faced with improvement and expansion projects rely upon general contractors to take on the project. But how do you separate the heroes from the zeroes in the construction arena? Ask Kia Ricci.

Ricci is a licensed general contractor, consultant and author of Avoiding The Con In Construction.  She’s also an engaging speaker with a mastery of the material and many years of hard-won experience. At Ricci’s address to NAR Expo 2014, she walked attendees through the ins and outs of identifying bad actors in construction contracting and subcontracting, from spotting problems in insurance, exploring state-registered complaints about work, to a catalog of scams and ripoffs in the construction trade.

Central Shops

Florida-based Ricci started her career as a Disney World employee in its Central Shops, Disney’s in-house fabrication division responsible for modeling, structuring and building props and structures for the Florida theme park as well as California’s.  She spoke of falling in love with construction when working on the Disney Swan and Dolphin resorts, with their 60-foot art adornments. Her making the leap from fantasy-driven projects to more ground-level undertakings was informed by years of working alongside craftspeople in all construction and structural disciplines.

Dotting I’s, Crossing T’s

Of construction contracting, Ricci said “Before any job begins, 50% of it has been done – in contracting, the business of construction.  If you don’t get this right, you’e going to probably have problems as construction gets underway.”  She listed the various aspects of contracting: project feasibility, scope of work, contractor qualifications, proposals, contracts, estimates, schedules, permits, inspections, contract obtaining and liens.

The talk focused mainly on the two critical areas of licensing and insurance, with Ricci exploring signs of insurance fraud and how to obtain lists of complaints against licensed contractors.

“[License complaints listings] are a gold mine,” said Ricci, while showing a screenshot of Florida’s website dedicated to publishing the complaints against contractors. “If you click in and find out that they have problems with their government licensing agency, you want to know.”  She was also careful to point out that not every complaint represents legal action taken – meaning contractor research on state complaint lists produces a different picture than a search in court records for the same contractor’s appearances on paperwork such as lawsuits.

To obtain a full recording of Kia Ricci’s presentation “Avoiding The Con In Construction” head over to PlaybackNAR.

Modular Construction: New Commercial Property Applications

Standardisation
(Photo credit: psd)

If there’s one common thread to the huge number of different technological changes roiling commercial real estate, it’s standardization.  Standardization looks for ways to treat different things in the same way, and build efficiencies as a result.  Standardization is behind all the software tools we use and increasingly depend upon – the web, your desktop, your phone, all need to run the application you need.  The listings data you depend upon has to meet certain standardized criteria or it won’t publish.  In finance, standardization of debt instruments gives us CMBS and other tools to increase credit and liquidity (sometimes too much!)

Standardization is also the enabler behind prefab (aka modular) construction.  Long a fixture in single-family residential, the practice of assembling major building components off-site has not been as historically popular in commercial construction projects, accounting for only 1% of US building market, generally limited to schools, hospitals, dormitories and some retail stores.  But that is changing as technology continues its inexorable march and commercial property developers look to squeeze every dime until it hollers.

The trade group Modular Building Institute says the market in modular construction for commercial buldings is set to increase over the next five years.  I took a look at hotels and data centers and found trends that support this idea.

Hotels

This neat animated video walk-through of a single hotel project utilizing modular construction techniques, details various measures of efficiency for construction schedules as the project gets built (mostly under a factory roof, down to the floor tile and wall treatments.)

Data Centers

Customization – the mortal enemy of standardization – is costly in the building of data centers.  It is falling by the wayside in the provisioning of multi-tenant data centers (MTDC) that rely on standardization of space along with its critical cooling, access and power requirements.  These packaging techniques for space afford tenants the ability to scale their square footage as their growth demands  — as opposed to the maximum that the landlord would traditionally prefer to rent.

The prefabricated, modular data center promises to have a major impact on the economics and technology of this still-nascent commercial property industry.  For all the same reasons that prefab is attractive elsewhere — efficiency, cost control, and the avbility to leverage real-world business metrics in space provisioning.

An excellent white paper detailing the impacts of prefab construction and provisioning is “Data Center 2.0: The Industrial Evolution”, provided by data center vendor IO.  Download the full paper here.

Demand For Commercial And Industrial Design Rises Even As Architecture Billings Index Slips

Architecture Billings Index chart showing decline in demand for design workWatching commercial real estate for signs of the coming future means keeping an eye on many different indicators.  One such number touted as a leading indicator of construction spending is the American Architecture Association’s Architecture Billings Index.

Used as an indicator for new nonresidential construction going out 9-12 months, the ABI defines nonresidential as “lodging, office, commercial, manufacturing, health care, educational, religious, public safety, amusement and recreation, transportation, and communication.”

The AIA Work-on-the-Boards survey is conducted monthly across a national panel of architecture firms. About 300 architecture firms actively participate, and firms included in this survey provide architectural services as their principal design service offered. Firms may also provide engineering, interior design, landscape architecture, planning, urban design, or related services. Most firms also provide pre-design or construction-phase services (e.g., construction management) in addition to their architectural design services.

June’s number is not looking so hot.  And it appears to be a repeat of a pattern for a springtime activity slump.

So what’s the good news?

Splitting hairs is something we’re forced to do sometimes when analyzing commercial RE, as so many real estate industry indicators include residential right along with our focus in nonresidential.  A little closer look at the Index shows a different story for commercial and industrial properties.   Architecture work commissioned by developers for industrial and commercial property are actually “slightly up”.

“For the second year in a row, we’re seeing declines in springtime design activity after a healthy first quarter,” he said. “This should be an alarm bell going off for the design and construction industry.”

The decline in demand hit nearly all four sectors covered by the index with the biggest drops hitting residential and institutional real estate. The commercial and industrial sectors showed slight gains in demand but the increases were less than in previous quarters.

Is the market in commercial real estate healthy from coast to coast?  No.  But our industry’s projects are sending more professionals to the drawing board, and that’s a bit of good news that easy to miss.

 

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COMTEX/NAIOP Study: 2011 Saw Double-Digit Growth In Construction Spending

Building construction
Building construction (Photo credit: Toban Black)

The Commercial Real Estate Development Association, NAIOP, released a positively sunny report from the construction sector that showed a greater than 12% bump in spending on construction from 2010 to 2011.

Construction is a leading indicator for a whole raft of economic outcomes:

The total economic impact of the development (pre-construction, construction and post-construction) of commercial real estate during 2011 added $261.6 billion to the GDP, compared to $231.7 billion in 2010, a 13 percent increase, according to the report.

“2011 was a transition year for the U.S. economy and the construction sector,” said the report’s author, economist Stephen S. Fuller, PhD, Dwight Schar Faculty Chair, University Professor and the Director of the Center for Regional Analysis at the George Mason University. “The U.S. economy shifted from a federal stimulus to private-sector driven growth pattern and construction spending grew accordingly.”

While the role of stimulus remains a contentious one given the catastrophic trajectory the market was on prior to the application of stimulus, there is less controversy around the link between construction spending and follow-on effects elsewhere in the economy.

2011 was the first year to post gains in development and construction of commercial real estate since the recession began in 2007,  according to NAIOP’s report, How Office, Industrial and Retail Development and Construction Contributed to the U.S. Economy in 2011, released May 1. The total economic impact of the development (pre-construction, construction and post-construction) of commercial real estate during 2011 added $261.6 billion to the GDP, compared to $231.7 billion in 2010, a 13 percent increase, according to the report.

Construction spending on commercial real estate totaled $92.3 billion, a more than 12 percent increase over 2010. This spending supported nearly 2 million jobs nationally.

The increases in construction spending and activity resulted in the building of 238.3 million square feet of new space, an increase of 2.5 percent from 2010. This new space has the capacity to house 610,000 jobs with an annual payroll of $26.8 billion.

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BIM: Toward Smarter Commercial Real Estate

I was taking a closer look at the medical center property market when I came across Carrie Rossenfeld’s very interesting piece about a 500,000 sq. ft. project breaking ground last week.  The UC San Diego Jacobs Medical Center in La Jolla, CA is a big project with a big idea driving the development and the management of the property afterward.

The idea is Building Information Modeling, a design, construction and property management discipline enabled by high technology.  Described as a “flight simulator for building”, BIM is a virtual construction tool/software-enabled technique that generates and manages data about the building throughout its entire life cycle, from design to property management.

The value proposition of every commercial property is anchored in the decisions made in design and construction.  The effects of these decisions have always been left to commercial property brokers, reps and managers to wrestle with using partitioning, improvement and other expensive change techniques.  BIM might put an end to that.  BIM looks into the future of the property and marries its design and construction to the future fitness for tenants.  It smoothes out and eliminates change orders both at construction time and in post-construction, unlocking maximum value for decades following.

One vendor of several bringing BIM to the market is Virtual Build, who produced this clip explaining the approach.

 

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