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Boom Times

Atlanta's continued growth means big profits for construction companies

Atlanta Business Chronicle - February 2, 2007

by Lori Johnston
Contributing writer

It doesn't take an aerial view to get a picture of Atlanta's construction industry.

Cranes are visible from interstate and surface streets in downtown, Midtown, Buckhead and even the suburbs, evidence of what heads of major construction firms say is shaping up to be a healthy year for the industry.

Look at the Allen Plaza construction downtown, then along Peachtree Street with "more projects than you can almost count," including those focused on creating a "Midtown Mile," and heading to office and multifamily construction in Buckhead, said Ethan Milley, managing director of Jones Lang LaSalle Inc. in Atlanta.

"There is a good mix of products that are being developed," he said.

Another significant sector: the hotel market.

"Across all those markets you have a very strong hotel product class. We're doing an immense amount of hotel work across the city," said Milley, noting properties such as the Marriott Marquis and Four Seasons
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The firm's other current local projects include the new World of Coke downtown and the 1.2 million-square-foot Sanctuary Park office development in Alpharetta.

Bill Pinto, president and chief operating officer of Atlanta-based Hardin Construction Co., which posted its most successful year in 2006, agrees that the hotel market looks like it is trending upward in 2007.

Also this year, mixed-use projects will continue to be a major focus, health care will continue its steady contribution to the market and the office market will be opportunistic but flat, he said.

Hardin is involved in some of Atlanta's most high-profile projects, including the W Atlanta Downtown Hotel and Residences, Cobb Energy Performing Arts Centre, Cousins Properties Inc.'s Terminus 100, Regent Partners LLC's 3344 Peachtree, University Commons at Georgia State University, Piedmont's Physician's Plaza and The Avenue Webb Gin.

The company expects its 2007 revenue to be similar to 2006 revenue. Pinto notes that the reason for Hardin's success is that the developers it works with have grown as Atlanta and the Southeast region have grown.

On the very positive side is that "Atlanta's growth is once again somewhat unprecedented," with the creation of high-end jobs and young people moving to the city, said Bob Peterson, CEO and chairman of Carter.

"That creates demand for housing, apartments, office space, retail," he said. "That really bodes well for everyone. It's a big, big factor to the reason why I don't think we're going to see much of a slowdown."

Bryan Benedict, president and chief operating officer of Humphries & Co., said he attended a recent luncheon hosted by CREW (Commercial Real Estate Women) and CoreNet Global in which economist Donald Ratajczak noted that 45,000 new jobs will be created in Atlanta in 2007.

"That's good," he said. "Our business attracts job growth and the absorption of class A office space."

That doesn't mean construction firms are on a growth spree internally. Companies involved in some of Atlanta's biggest projects aren't increasing the size of the employee base, but instead, as Peterson points out, "doing more with less."

"People are being smart about how they deliver projects and what is feasible for the market to deliver," Milley said.

This year, Carter's major projects include the 1.2 million-square-foot residence halls and 182,000-square-foot library renovation at Georgia State University, the Regents Park at Peachtree Battle townhomes and flats project, and the 275,000-square-foot Piedmont West medical office and retail project, which may also feature a 150-room hotel.

Humphries & Co., which performs mostly interior tenant construction, entered 2007 with a "nice backlog of work," said Benedict.

For 2006, the firm's revenue was projected to top $60 million. Projects under way or slated for 2007 include the law firm Nelson Mullins Riley & Scarborough LLP's space in Atlantic Station's 201 17th Street, two jobs in Cousins' Terminus 100, CompuCredit Corp. in Perimeter's Concourse Corporate Center V and VI and a large data center, although he wouldn't provide details, citing confidentiality.

"We hear the architecture and design community, project management firms and commercial leasing firms are all busy," he said.

Even with a busy year, Humphries & Co. is balancing its work among the staff already in place, which includes about 100 people in the field and 25 people in the office, Benedict said.

But he's watching what happens with major Atlanta companies in transition, including Delta Air Lines Inc., BellSouth Corp.'s acquisition by AT&T Inc. and Georgia-Pacific Corp.

"Everybody's concerned about the loss of Atlanta-based companies," Benedict said. "Those are the companies that feed the law firms and insurance firms and other local companies that grow and absorb space."

Challenges in the construction industry for this year are similar to those in past years, including difficulty finding qualified personnel and anticipating price and market fluctuations, Pinto noted.

Construction costs are expected to increase possibly 6 percent to 8 percent this year, said Pinto. Material costs are not as volatile as in the past, but are still on a steady, rising path with steel, cement, copper, aluminum and petroleum-based products as the drivers.

"Construction costs have moderated over the last few months compared to the incredible increases we've seen in the past two years," Peterson said. "We're still adjusting to higher costs. So that's always a challenge."

Construction industry in Georgia and United States

• Construction employment in Georgia: 219,500 in November 2006, seasonally adjusted, an increase of 5,900, or 2.8 percent, since November 2005. (Construction employment nationally grew 0.5 percent.)
• Construction spending nationally increased 5.4 percent to $1.11 trillion in the first 11 months of 2006, compared with $1.05 trillion in the first 11 months of 2005.
• Non-residential construction jumped 14 percent, from $453 billion to $515 billion.
• Residential construction slipped 0.7 percent, from $600 billion to $596 billion.