Category Archives: Regional Economy

Pittsburgh’s Other Big Project Isn’t in Pittsburgh

As the Shell Franklin project in Monaca gets underway in earnest, with the expectation of having 1,000 workers on site at year’s end, another major manufacturing project has already passed that milestone. In Berkeley County, WV, Fluor Corp. is building the new Tabler Station plant for Proctor & Gamble. The plant will be 1 million square feet under roof and involves a $500 million investment for its first phase. Workforce is going to peak at 1,500 this summer, according to P & G. Because of conditions in the DC/Baltimore market, the Tabler Station project is having a bigger impact on Pittsburgh-area contractors than the aforementioned Shell cracker.

That’s in part due to the fact that Bechtel and Great Arrow Builders are inclined to self-perform much more of the project than originally hoped. But DC-area contractors have also thus far been too busy in their own backyard to show as much interest in the P & G plant, which is located less than 3 hours southeast of Pittsburgh off I-81. Thus far, trade packages have been awarded to Pittsburgh-area contractors Mascaro Construction, Mosites Construction, McKamish Inc., Lighthouse Electric and Yates Construction, which has been working within the region at WVUH Ruby Hospital (and teaming with Pittsburgh contractors). Kinsley Construction from York has also landed a building. None of the packages have been large to date but expectations are that as the contracting continues throughout this year and next that multiple regional contractors could end up with $25-50 million in volume. For some of Pittsburgh’s contractors working on the project, that kind of volume could affect how they respond to projects in their own backyard.

In other project news, St. Clair Hospital short-listed PJ Dick, Mascaro and Yates for interviews this week for its $80 million expansion. The team of NEXT Architecture and Franjo Construction are working on Uber’s expansion into an additional 90,000 square feet in the Crucible Building in The Strip. The City of Pittsburgh Planning Commission OK’d 3 major office projects this week: Murland’s 90,000 square foot office on Forbes Avenue (to be built by Mascaro); RDC’s 105,000 square foot office on Smallman at 12th Street; and the $9 million repurposing of the former Art Institute’s building on the Boulevard of Allies, which M & K Wilkow is developing.

The PA Dept. of Labor released April employment data that showed Pittsburgh’s employment rose by 5,900 jobs from March and unemployment rose from 5.1% to 5.3%. Unemployment was down significantly when compared to April 2016, when the percentage of unemployment was 5.8%. Some of the decline is, unfortunately, a result of a shrinking workforce but there is also an upward trend that is positive. CBRE released an analysis of employment growth last week that showed that job growth has reached 0.45% since October 2016 and 0.71% since January. CBRE cited gains in restaurant/hospitality, financial services and especially in technology. The chart below shows that job growth in scientific research and development in Pittsburgh has far outpaced the rest of the U.S. over the past three years. Let’s hope this trend holds.

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Unemployment Dips

According to Pittsburgh Today, unemployment fell in March from 5.6% to 5.1% over the past 12 months. The bad news was that there were more than 10,000 fewer people in the labor force compared to March 2016. That’s an indication of the power of the demographic challenge facing Pittsburgh over the next five years.

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On the national scene, yesterday’s report on new unemployment claims found 238,000 new claims were filed in the last week, the lowest in 17 years. The national unemployment rate is now 4.5 %

In project news, UPMC selected Turner Construction as CM for the $111 million Hamot patient tower in Erie. Construction is expected next year. CM selection is expected in a few months for the $100 million-plus UPMC South and for the $150 million-ish UPMC Mercy Ophthalmology center.

University of Pittsburgh has been bidding flurry of projects recently. Allegheny Construction Group was low on two projects last week. Allegheny was low on the Frick Fine Arts at $309,000 (although an alternate could flip the job to Facility Support Services) and on the 7500 Thomas Blvd. print shop at $548,500, edging out Rycon at $552,000.

Hospitals and Jobs

Both the major Pittsburgh hospital systems have signaled an increase in spending in 2017 and the push has really begun throughout the market. Proposals are due Friday for CM services on the $111 million UPMC Hamot patient tower. RFP’s went to PJ Dick/E. E. Austin, Mascaro, Massaro/Gilbane, Turner and Whiting/Turner. RFP’s for the $75 million St. Clair Hospital project are due out by next week and RFP’s for the new 280,000 square foot, $180 million UPMC South Hills hospital at South Fayette’s Newbury Market should follow right behind. You can read more about the hospital construction market in the March/April BreakingGround digital edition.

In other project news, BRIDGES & Co. was awarded the $4.5 million expansion of Prominent Fluid Controls Building 2. Massaro Corp. was selected for a $5 million renovation project by UPMC at the Kaufman Medical Building in Oakland. Pittsburgh Theological Seminary is taking proposals from Facility Support Services, PJ Dick, Jendoco and Mosites for renovations to its library, a project in the $10-12 million range. Corcoran Jennison is taking bids April 15 for the 2nd phase of the Oak Hill neighborhood, the 140-unit Brackenridge Apartments. The contractors bidding the $24 million phase are Arcon Construction, Fairchance, Graziano, Jendoco, Mistick and PJ Dick/Waller.

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Employment growth since 2013 has been well below February’s 10,000-job pace.

The Department of Labor released its estimates of metropolitan job growth in February and Pittsburgh came in below the benchmark average of two percent, with 10,000 more jobs than in February 2016. That’s a 0.9 percent bump; not great but four times the average annual gain for 2014-2016. The forecast is that the rejuvenation of the gas business will be a booster – rather than a drag – for the tech and finance job growth in Pittsburgh this year.

Uber On

Tuesday’s NAIOP Pittsburgh chapter meeting was a luncheon that hosted executives from Uber, who explained the company’s Pittsburgh growth strategy. Started in 2009, Uber has grown to more than $20 billion in revenue, with 11,000 employees worldwide. The company’s VP of Strategic Initiatives, David Richter, presented a dizzying set of facts about Uber’s astonishing growth. And while the ride sharing business represents its major revenue stream, it’s clear its future is elsewhere, like autonomous vehicles.

Richter spoke glowingly of Pittsburgh, claiming that Uber was beginning to see cases of San Francisco employees choosing to relocate to the Steel City because of quality of life and the opportunity to work on the next big thing. He also made it clear that it was CMU’s engineering research and grads that were the reason Uber was here.

“There are only four or five cities in the world with that kind of talent in robotics and Pittsburgh is one of them,” he said.

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Uber’s David Richter addresses the crowd at NAIOP Pittsburgh.

Uber also did a slideshow of its incredible new offices in Lawrenceville, which were designed by Strada and built by Continental Building Co. The $32 million project is modern and clean, with many spaces designed for collaboration. During the course of the presentation Richter also mentioned the payoff for the region: after starting at zero employees in January 2105, Uber now has 550 in Pittsburgh, with roughly 100 new positions open now.

He also noted that the company anticipated needing more space in the near future. After building its new Advanced Technology Center and fitting out about 100,000 sq. ft. in Schreiber Real Estate’s building on 30th Street, Uber has invested nearly $50 million in new testing facilities and track at Almono.

Confidence is High

The prospect of lower corporate taxes and less regulation has business swooning at the start of 2017. One of the measures of small business confidence – the National Federation of Independent Businesses index – soared more than 7 points in December to 105.8. That’s the highest since the end of 2004, when the economy took off after an uneven recovery from the 2001 recession.

PNC Senior Vice President and Chief Economist Stu Hoffman gave an equally confident forecast for 2017 (and 2018 for that matter) when he addressed a crowd of NAIOP Pittsburgh/BOMA members this morning at the William Penn. Hoffman liked the chances of tax cuts, stimulus spending and less regulation during this year and forecast that GDP would respond by growing closer to three percent. Hoffman saw that happening in late 2017 and into 2018 – maybe even a quarter or so of 4% growth – assuming the stimulating measures are enacted during the first months of the Trump Administration. He also warned that overplaying trade sanctions could blunt the growth from the stimulus.

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BOMA President Tony Young from the Carnegie Museums (left) with PNC’s Stu Hoffman and NAIOP President Dave Weisberg from BNY Mellon.

Confidence in the construction industry has been boosted by the strong year-end activity. In addition, there are a half-dozen or so major projects that are in the process of moving forward in 2017, although few will start construction until afterwards.

UPMC announced its big investment in Hamot in Erie but the healthcare system is also on the verge of an announcement about its direction in the South Hills, where a new hospital or multiple mini-hospitals may be built to serve its patients. Another major South Hills hospital project, the St. Clair Hospital expansion, is getting a redesign but should be put before selected CM’s for proposals before spring. Reports are that the Dick’s HQ expansion is back on the front burner. And Pitt is moving forward with early programming for a new building at the Syria Mosque site that is in the 350,000 sq. ft. range.

A couple of $30 million-plus projects that have been kicking around for a while appear to be heading for a competitive hard bid. Oxford Development is rumored to be close to a major tenant announcement for its Riverfront West project at 3 Crossings. In Oakland, Campus Advantage will be bidding its 300,000 sq. ft. apartment project on Forbes Avenue.

Murland Associates selected Mascaro Construction as contractor for its proposed 97,000 sq. ft., $15-18 million office at 3422 Forbes Avenue. Landau Building Co. was selected as contractor for the $4.5 million Mars Library. Pitt awarded the $3.4 million Barco Law Library project to TEDCO Construction. Chapman Corp. is the apparent successful bidder on the mechanical piece of three major compressor stations for Energy Transfer Partners, in Clarington OH, Majorsville PA and Burgettstown PA.

Mall Closings Shouldn’t Surprise

Today’s announcements from Sears, K-Mart and Macy’s were headline news around the country but the closings are really “dog bites man” news. The ever-growing share of online shopping is a five-year story that has left retailers struggling to find the right mix of bricks-and-mortar vs. online retailing. Research has shown that retailers that do both well get more money from shoppers than those that just do one or the other well. I don’t envy any company trying to figure that out, especially since the landscape is constantly shifting.

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Macy’s Ross Park Mall store was one that escaped closing.

Pittsburgh was left relatively unscathed by the closings, with only a few malls in outlying areas affected (although you have to wonder about the wisdom of closing Beaver Valley Mall stores at this point). On the upside for the region, it seems that Pittsburgh is on the radar for fulfillment centers, which is the upside of retailing these days. Several of the big warehouse leases signed in the past 6 months have been for online fulfillment and the prospect of Amazon as the user for the million-square-foot warehouse at Chapman Westport remains strong. One of the many companies scrambling to get into this business is Macy’s, which is converting some of its big closed stores into fulfillment centers. Perhaps that fate awaits one of the two stores announced for closure in metro Pittsburgh.

Look for this industrial market niche to be a hot – if not huge – property type over the next few years. FedEx Ground has invested significantly in facilities over the past decade but expect to see it, and its competitors, try out new ways to get products to consumers quicker. Amazon’s arrival will signal to others, like Zappos and Wayfair, that Pittsburgh is a viable next-step market. With the industrial demands that will come from Shell’s cracker and related industries, warehousing will be a steady source of millions of square feet of new construction between now and 2025.

New Year, New Opportunities?

Small businesses, which are the drivers of the business economy, are entering 2017 with a renewed sense of optimism. Whether it’s the belief that a Trump Administration will drop regulations or roll back Affordable Care Act, owners of small businesses are responding to surveys about 2017 in a significantly more upbeat manner than they did in recent years. If that optimism survives the first few months of transition, that is a very good thing for construction. More small companies grow than big ones and that means more expansion and new construction opportunities.

There is growing excitement in Pittsburgh about the impact of the Shell cracker project but its effect on 2017 will be mild compared to the years that follow. According to Bechtel, it’s estimated that “only” around 1,000 workers will be on the site by the end of 2017. That’s a fraction of the 6,000 that Bechtel still says will be needed during the following two years, when most of the plant facilities are brought on site.

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This is what $500 million-plus in “ready” work looks like at the Shell site.

One construction buyer that has come back into the market is the General Services Administration. The GSA manages the federal government’s property and has been all but missing for the past decade. The agency currently is seeking qualifications for a 3-step best value process that will occur next spring for $20 million in renovations to the federal courthouse Downtown. GSA is also looking at sites in Butler/Beaver/Lawrence to locate a 400,000 sq. ft. records warehouse. Here again, if the Trump Administration can deliver on promises to stimulate spending on construction, GSA may become a regular buyer in the region.

Some projects that are active in Pittsburgh include the new $25 million Waters Senior Living community underway in Marshall Township, which is being built by Continental Building Co. The PA Builders Exchange reports that the $28.7 million Latrobe Elementary School is due Feb. 16. Pitt took alternates that made TEDCO Construction the successful contractor on the $3.4 million Barco Law Library. Rycon Construction is starting work on converting the 65,000 sq. ft. Latitude 360 into a Main Event entertainment complex. Rycon is also the CM on a 20,000 sq. ft. renovation to Mellon Pavilion’s second floor at West Penn Hospital. That’s mainly an MEP upgrade.