Two Steps Forward, One Step Back

The local construction economy has been surprisingly resilient since Feb. 1, particularly in light of the fact that the boom of the last few years has been driven by private investment. This is the source of development that has run for the sidelines in most of the nation.

In western PA estimating for future construction is not at the levels it has been in recent spring seasons, but the activity level is climbing. This is a very good short-term sign, since the higher activity in Feb/March could have been simply a Band-Aid carried over from the fourth quarter void. What’s out to bid now is a broad-based spectrum of projects. Due in the next couple of weeks are a $30 million fit-out for K & L Gates downtown, a $30 million science building at St. Vincent’s in Latrobe, the $99 million Bethel Park High School, and a couple of dozen $5-10 million dollar projects, ranging from office/warehouses to schools/colleges to retail (believe it or not).

None of this is a reflection of any stimulus spending. For those looking to see how the ARRA investments will flow in the region, watch for an increase in projects at the SSHE campuses (Slippery Rock, IUP, Cal, etc), and some assistance to larger private developments that can justify adi for infrastructure. For direct stimulus spending it will still be another quarter at least until PennDOT or the counties or state agencies can push ‘shovel ready’ work out to bid.

A couple of larger development projects are still moving: the Flabeg plant in Clinton Business Park (180,000 SF) is getting ready to start, Horizon Properties is contracting a 100,000 SF office in Southpointe II, a 4-story office at Southside Works (formerly slated for Dick Corp.) is heating back up, and Westinghouse has asked for developer proposals for another 165,000 SF in Cranberry, not scheduled as part of their Cranberry Woods campus.

The cloud to go with the silver lining is the word that two of the big projects in the region have gone on hold temporarily. The Clairton Coke Works expansion has been stopped, as worldwide steel demand has plummeted, causing layoffs in the existing plant. There are some rumors of callbacks in April, but nothing to substantiate those as anything but hope. Likewise, the deterioration of the global economy has dampened the specialty steel market, which has caused a delay in plans to build the $1.4 billion Allegheny Ludlum plant in Brackenridge. Both projects could be on the front burner again by summer, but continued soft conditions may also put the work on the shelf until 2010 or later. That scenario will have a significant impact on available labor within one quarter.

That bad news aside, contracting for the first quarter appears to be heading for $500 million or so, a volume that was unespected just 60 days ago. It will be June 30 before we can judge if this is a spring fling or an indication that commercial real estate isn’t getting any worse here.

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