Mega-projects alter building landscape

As the number of permitted projects trend downward in recent years, the value of those projects skyrocketed last year.

Commercial building permit numbers in 2007 were down 9 percent since 2005, but permit values at the same time grew 138 percent to $210.8 million, a record amount in at least a decade, according to city data.

While the permit decrease represents a decline of only nine permits, several big-ticket projects, ranging from City Utilities’ Southwest 2 power station expansion to the Springfield-Branson National Airport’s midfield terminal, are creating ripple effects in the building market.

Increased competition is chief among the effects of an industry grappling with fewer – but larger – projects, according to industry sources.

Commercial competition

Smaller contractors not equipped to handle major work are left to bid for fewer small- to medium-size commercial projects, but demand for skilled workers remains high as the larger projects take shape.

Combine those issues with the effects of a slowing market for home builders – some of whom are moving into small commercial work to keep their businesses going – and the result is a commercial building market that’s more competitive than it’s been in years.

“It’s tough right now – every architect is having to field calls from contractors looking for work,” said Matt Bailey, president of contractor Bailey Co. “So when a project goes to bid, where there would have only been four bidders, now there’s six or seven. It’s not that they’re new people; they’re just people you’re not used to seeing bid on those types of projects.”

Randy Ganz, senior vice president with DeWitt & Associates, said the relative strength of the Springfield economy has drawn builders to the area from other parts of the region as well.

“The competitive bid market is pretty aggressive right now, with the influx of general contractors,” Ganz said, pointing to Kansas-based Crossland Construction as an example.

Bailey said the competition is exacerbated by the slowdown in new home construction, which has forced some home builders to move into commercial construction to make ends meet.

“More contractors are willing to do anything now; whereas before they used to do residential only, now it’s also light commercial,” Bailey said. “I’ve had a few come to me looking for work, even if it was just for four to six months at a time, until this turns around and they go back to homes.”

According to data from the city of Springfield, there were 209 single-family housing permits in 2007, down nearly 50 percent from 2006.

Bailey’s familiar with the slowdown in new homes; Bailey Co. does construction and remodeling work for both residential and commercial projects, and Bailey said he has shifted much of his effort into the commercial sector.

Commercial construction also is affected by the state of the economy, according to Jim Carson, vice president of Carson-Mitchell Inc. and past president of the Springfield Contractors Association. If current economic conditions continue, Carson said the competition will intensify.

“Some of those smaller projects – if the economy goes too far south – could get put on hold,” Carson said.

“Owners may finish up plans and then say, ‘I think we’re going to hold on this for a little while.’ That happens any time you have a slowdown in the economy.”

The downturn in new commercial projects may have already hit the design side of the industry.

Butler, Rosenbury & Partners, the largest architecture firm in Springfield according to Springfield Business Journal’s 2008 Book of Lists, cut 8.5 full-time equivalent jobs, or roughly 10 percent of its staff, in late March, citing steadily declining billings since August.

Economic outlook

While competition for jobs in the local market is intense, builders are split as to what the future holds.

“I think Springfield is strong in the commercial market,” said Danny Edwards, president of Connelly Plumbing and current SCA president.

"With the interest rate lowering, you’ll see people who have held off on their building expansions break loose some of those smaller projects. That will fill in work for the smaller contractors who don’t do those larger projects.”

He said his firm has seen at least four projects come in for bid in recent weeks, and he pointed to upcoming projects with Missouri State University and Springfield R-XII Schools, as well as the strength of the Branson economy.

Edwards added that housing market conditions have helped to keep the prices of drywall and lumber down, which helps builders.

Bailey also was optimistic; he noted that work is especially strong in the remodeling market, and the numbers support his optimism. Commercial remodeling permits in the city of Springfield in 2007 were up 19 percent compared to 2006, while permit values were up 33 percent.

“I think construction is still strong – commercially especially,” Bailey said. “We’re being asked to bid projects quite often.”

Carson, however, is unsure about the market. His firm has participated in some of the large projects, including CU’s new power plant and the Heer’s parking garage downtown, but he sees a downturn on the horizon.

“I think we’re going to see a slowdown, but I don’t have any idea how dramatic it’s going to be or how long it will persist,” Carson said.

“It’s really hard to tell, because some of the architectural and engineering firms have a fair amount of work that will be coming up for bid.”

Bailey, though, thinks the home market will eventually rebound, which will alleviate some of the commercial competition issues – though the process will be slow.

“I know the (residential) market is bad – there’s no way around it. But we know it will turn around, once we sell these houses that are sitting,” he said.

He expects the turnaround to begin late this year, though he added it could be 2011 before home construction is back to the levels of 2004, when the city logged 535 single-family home permits.

“Confidence will return some day – it’s just going to be a slow process,” Bailey said.[[In-content Ad]]