Today’s release of the Pittsburgh Regional Alliance’s annual Business Investment Scorecard shined a light on how the regional economy’s strengths are driving construction in Western PA. The PRA noted that there were more deals – 340 – in 2018 than in any year since the scorecard started in 2007. In those deals was $1.2 billion in capital investment in development. Drilling into the major business sectors, you find that the top job creating areas were IT/robotics, energy and manufacturing. It’s not a coincidence that these sectors are the ones filling up the new buildings in the Strip District, Bakery Square, Robotics Row, etc. The new economy in Pittsburgh is driving commercial construction.
From the news, it appears these sectors are still driving construction in 2019. Al. Neyer Inc. announced it had landed Victory Packaging as a lead tenant and was starting the 220,000 square foot Jackson Distribution Center (rendering above) north of Zelienople. RDC Star took its $50 million District 15 Version Beta through the city’s planning process this week. RDC Design + Build hopes to start construction on the building in August.
PA Turnpike Commission awarded contracts for the $20.3 million Southern Beltway maintenance buildings. Nello Construction is the general construction contractor. Mascaro was selected for the $40-45 million UPMC Mercy 3rd floor renovation. Dick Building Co. started work on the $2.3 million new quest cottages at Laurel Valley Golf Club.
The first week of the month is an eventful one for economic data. Last week was no exception. First the Commerce Department announced that total construction spending had declined year-over-year, but was still near all-time record high levels at $1.282 trillion dollars annually. The news that followed was rosier.
The Commerce Department released its first estimate of GDP growth for the January-March 2019 quarter. The 3.2% annualized jump was higher than expected. The above average growth was a turnabout from the talk of recession from earlier this year. There were two notes of caution in the report, however. First, GDP was inflated by an unusual buildup in inventories, which generally means that a following quarter will have lower growth from inventory depletion, There was also a temporary decline in imports, likely resulting from tariffs, which boosted consumption of U.S. goods. The second caution was the 1.3% increase in the sales of domestic goods to consumers and businesses. This suggests that underlying demand is lower than the headline GDP growth.
On May 3, the Bureau of Labor Statistics released its monthly Employment Situation Summary, which found 263,000 jobs had been created in April. Unemployment fell to 3.6%, with the number of unemployed persons falling to 5.8 million. That’s more than one million fewer people than there are jobs open, which underscores the seriousness of the problems that businesses are having with finding workers. In reality, this trend of roughly one million more jobs than workers has existed for a year or so, and it should have slowed the economy by now. Obviously, that hasn’t happened.
Light regional construction news. Research of April’s building permits in Pittsburgh revealed that Cavcon was selected to build Vollmer America’s new $4.8 million building in Findlay Township. PJ Dick has started work on the new $26 million multi-modal garage behind Bakery Square on Dahlem Place. A. Martini & Co. started demolition on the $6.5 million Wabtec TI at 30 Isabella Street on the North Shore.
Department of Labor data this week showed Pittsburgh’s seven-county unemployment rate dipped to 3.6%, which is lower than the national rate of 3.8%. That’s the lowest since February 1970. Even more encouraging in the data was the estimate that Pittsburgh’s workforce grew by 8,000 in February, the second straight month of increased workforce. The Pittsburgh economy has been creating more new jobs each month than the net growth numbers, but the rapid retirement rate was consistently dragging the numbers down. Attracting population – and thereby workers – has been a major stumbling block for the region’s business attraction efforts. Let’s hope two months becomes a trend.
One of the job creators in Pittsburgh, Facebook, is taking bids on the buildout of its 105,000 square foot VR space in District 15 in the Strip. Proposals are due from Burchick Construction, RDC Design + Build and Turner on April 5. RDC is also out to bid for subcontractors on its next building, the 260,000 square foot + 387-car garage District 15 Beta.
ConstructConnect is reporting that Carl Walker Construction was the low bidder on the Washington County Courthouse Square Parking Garage and Plaza renovations, at $8.5 million or $13.4 million depending on options selected. DiMarco Construction was the low general on the $6 million Gill Hall Elementary School addition. Volpatt Construction was selected for the $1.2 million West Penn Hospital ERCP project.
Thursday morning, URBN announced they were building an 863,000 square foot fulfillment center for Urban Outfitters at the Windy Ridge Business & Technology Park in Indiana, PA. The project is one of the few mass fulfillment centers located west of the I-81 corridor and is a tremendous return on the investment made by the Indiana County Center for Economic Operations (CEO).
Indiana County CEO executive director, Byron Stauffer, says that $20 million had been invested in the Windy Ridge project over a period of more than ten years. Stauffer was effusive in his praise for the governor, Senator Don White and Rep. Dave Reed for their support of the project, which attracted a variety of grants and loans. URBN said that the fact that Indiana County had a prepared site, available workforce (the facility will employ more than 200), access to Route 422 and the IUP supply chain management program, tipped the decision in favor of the Windy Ridge site.
“The lesson learned here is if you think small, you get small,” Stauffer concluded.
Blue Rock Construction from Allentown is the construction manager for the $60 million-plus facility, which will have 45-foot precast concrete panels on the exterior. Construction is scheduled to be completed by late summer 2019.
The bids taken Sept. 11 on Pitt’s $41 million Salk Hall Renovation Phase 2 had the hallmarks of growing inflation and a market that is busy. The $50,862,000 total for base bid #1 was about 25% over budget and the project will likely re-bid after scope changes, since there were few alternates to reduce the cost. Burchick was the low general contractor. The general bids are below:
I don’t have enough information to deduce how much inflation impacted the project but the U.S. index for inputs to construction rose 9.6%, 8.1% and 8.1% year-over-year in May-July. There are also some indications that the current market conditions played a factor. There were only 3 bids on the general and electrical packages. HVAC received 4 bids and plumbing received 5. That’s a dramatic difference from what a Pitt-delegated project would have received even one year ago. Moreover, the gap between bids was big. Burchick’s low bid was 6.8% below the second low bid, and 10.2% below the third. That was the tightest spread by far. The spread between the low and second bids on the other 3 contracts was at least 9.5% and as much as 12.5%.
One of the strong economic signs has been the upswing in owner-occupied industrial/manufacturing projects. Yesterday, Uwharrie Builders from NC broke ground on an 80,000 sq. ft. expansion for Technimark in Latrobe. On August 20, New-Belle Construction pulled a permit for a 68,000 sq. ft. new facility for Zilka & Company in Mason Park, an industrial park near New Stanton. Westmoreland County IDC has been preparing new pads in several locations in anticipation of opportunities like these. Zilka is in the bakery products business and Technimark does rigid plastic injection molding for healthcare applications. While emerging technologies and gas-related energy should drive growth in manufacturing, the gains in regional manufacturing seem to have a wider base.
Thursday I attended a seminar on the Opportunity Zones that were created as part of the Tax Cuts and Jobs Act at the end of 2017. The overlooked provision of the law has the potential to attract a lot of investment in poorer communities. The short explanation is that investing in Opportunity Zone projects or businesses allows you to defer capital gains as much as ten years, and then increase the cost basis of the investments made in the Opportunity Zones by up to 15%. If you hold the investment for ten years, the gains on the investment are tax-free.
There are 86 such zones in SW PA, some 300 statewide. Some of them are places where there is already redevelopment buzz or projects, like the Hill District, Hazelwood and Homewood. The bad news is there are still no regulations published by the IRS yet, meaning that investors are still waiting out to see what the rules will be. By year’s end (at worst) this should be accomplished. You can read more about the zones at the DCED web site.
Project news is quite lean. The economic news of the week was Friday’s jobs report, which showed the US employers adding 157,000 jobs in July. That’s a decline from June’s total but still brisk enough to keep the average monthly gain for 2018 above 200,000 jobs. Economists believe the hiring pace would have been better but for the lack of applicants in the job market.
Digging into the weeds of the April employment reports, AGC reported on the metropolitan-level construction employment levels compared to the previous April peak and trough. Pittsburgh had 57,100 workers employed in construction in April 2018, 400 more than the peak in April 2008. Pittsburgh was one of only two PA metros (Altoona was the other) that had exceeded its previous peak employment level.
There was an interesting comparison of data that illustrated just how much better Pittsburgh fared in the last recession than other PA cities. In April, the new Pittsburgh level was 16% above the trough, the low point of 49,700 in April 2011. Compare that to Philadelphia’s suburban metro, which saw construction employment plunge to 38,900 in April 2011. Today, suburban Philadelphia employment still lags its 2008 peak and has but 1,000 more workers employed than Pittsburgh.
In construction news, Burns & Scalo Real Estate is excavating the site for its $35 million, 160,000 square foot Riviera office building (see below). The Riviera is being built 100% spec, although rumors of an anchor tenant swirl. Burns & Scalo is banking on the burgeoning tech industries and the proximity of Pittsburgh Technology Center to attract tenants as construction proceeds.
The University of Pittsburgh is seeking Predetermination of Responsibility responses on June 20 for its Salk Hall Phase 2 renovation. This is the prequalification for contractors interested in bidding the four prime contracts for the $40 million project. The bidding will go through DGS but will be limited to the contractors Pitt approves through the PDR process. Read more about the PDR here.