Category Archives: Regional Economy

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.

The Millennials Are Coming!

Yesterday, the apartment finder and research firm ApartmentList published its findings on the movement of the Millennial generation over the past decade. Austin, Charlotte, Houston and Seattle were the top four cities for growth in population of people between the ages of 25-35 and Pittsburgh ranked 14th, which seemed to be a surprise to ApartmentList. Between 2005 and 2015, the number of residents of metro Pittsburgh in that age range grew 7.1%. During the same time, median income grew 6.8%. One stat that separated Pittsburgh from the pack was the lower rate of decline in home ownership among 25-35 year olds. The home ownership rate fell nationally by 7.4% but only by 4.5% in Pittsburgh.

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The data supports the trend showing Pittsburgh’s median age declining to 33 years old and also underscores the competitive advantage of Pittsburgh’s lower cost of home ownership.

Updating some projects, commuters driving down Smallman Street should see Turner Construction starting work on the $19 million, 133-room AC Hotel near the Convention Center. Turner also appears to have been successful on the $30 million administrative buildings package at Shell’s cracker plant in Monaca, although that contract has not been confirmed.

Allegheny Health Network awarded Mascaro the $3 million Esophageal Lung Institute project at West Penn. UPMC awarded AIM Construction the $6 million Hill Building renovation. A. Martini & Co. was selected to do the $2.2 million build-out of Industrious’ co-working space in PPG Place. Pitt selected Massaro for its $3 million renovation to the Cathedral of Learning’s 14th floor.

The Shell Game

I thought I would wait 24 hours after the announcement of the final investment decision by Shell to let the newspapers have at it before a follow up post. Yesterday’s news was certainly good for the regional economy and helpful for the recruiting and training efforts that will go into attracting labor. It also wasn’t that big a surprise.

As we reported last week, Shell has been moving more publicly in recent months, even talking openly about the Monaca project (which Shell refers to as the Pennsylvania chemical project) in its earnings call. Wesex has begun site preparation for a 200,000 square foot warehouse for C. J. Betters Enterprises that will be leased to Shell for storage. Shell has also leased land from Betters in Aliquippa that will be used for parking and overflow from the plant construction.

The players in Monaca once the plant gets started – and construction is continuing to proceed, regardless of the 18-month timeline given to the press – are Bechtel as the main EPC entity, along with Babcock & Wilcox for the plant itself and McCarl’s.

Shell’s announcement wasn’t the only big news in Pittsburgh’s energy market yesterday. Westinghouse announced it had secured agreements (although not signed contracts yet) to build six nuclear power plants in India. Westinghouse has received other contracts for plants around the globe, a signal that fears about nuclear plants are abating. After a bid employment build ten years ago, followed by a right-sizing through layoffs and attrition, Westinghouse’s new contracts should spur new hiring. Having subleased one of its buildings to PPG and vacated at least two off campus buildings, Westinghouse will find its space pretty tight if many new hires occur. That could be a nice boost to the Cranberry office market, which is beginning to show signs of life again.

Job Growth Again

Friday’s report from the Bureau of Labor Statistics wasn’t an April Fool’s joke. Employers added 215,000 jobs in March, boosting the year-over-year gain to just over three million. Estimates for January and February were also increased. The best news of the report was that nearly 400,000 people joined the civilian workforce. While that increased the unemployment rate, it’s a good sign that part-time or discouraged job seekers are re-entering the labor force.

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At the local level, job creation has been flat through February. One employer that is not holding still is Uber, which is estimated to have around 400 employees in Pittsburgh. While the private car service waits for its office and research center in Lawrenceville to be completed Uber is making plans for its $20 million-plus investment in automated vehicle research at Almono in Hazelwood. Franjo Construction has been selected to do the $11 million test track, as well as renovations to the Roundhouse Building.

Even as the hotel and apartment development markets are becoming less appetizing to lenders and investors, two projects in Pittsburgh had news last week. Developers of the $14 million Hotel Indigo in the Pittsburgh Technology Center are talking with Franjo, Cavcon and Dick Building Co. about construction of the project. In Lawrenceville, Milhaus Development has been working with Rycon during planning and preconstruction of its $120 million mixed-use project at the Arsenal Terminal Warehouse site. The developer is reported to have prequalified contractors to bid the first phase of the project, which is to include approximately 200 apartment units in 4 phases. Among those being considered are BRIDGES & Co., PJ Dick, Mistick, Franjo, Rycon and two companies from outside Pittsburgh.

The Buzz About Transit

March 15 was the Pittsburgh Downtown Partnership’s annual meeting, which featured a speech by Gabe Klein, who was head of transportation for Chicago and Washington DC over the past five years. Klein’s a cyclist and entrepreneur who took a very private-sector approach to getting “sh*t done” (his quote) to change transit in those cities. He had a very exciting vision for what urban transportation would look like, especially after automated vehicles were the norm. His speech dovetailed nicely with the one Mayor Peduto made about Pittsburgh’s selection as a finalist for the $50 million Smart City grant.

For all the firsts in dining and entertaining and livability Pittsburgh has garnered, winning this grant in competition with cities like Austin, Denver, Portland and San Francisco would be a major win. Google the subjects and watch a couple of the YouTube videos with Peduto or Klein talking about smart transportation. It’s exciting stuff.

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Rendering of Chicago’s Bus Rapid Transit System and the transformation of a six-lane street into multi-modal transit. Image courtesy Pittsburgh Downtown Partnership.

Along those same lines, Pittsburgh Today posted an article today by Julia Fraser, called Thinking Boldly that advocates for a braod-based coalition of ideas about the future of transit in Pittsburgh. It talks about the work of the new Regional Transportation Alliance that is attemopting to develop a strategy for combining light rail, bus, and non-motorized mobility to make Pittsburgh a model city. To accomplish anything significant in transit will require outside-the-box approaches like have been taken in Denver and Phoenix. There citizens agreed to tax increases dedicated to funding transit. Bold indeed.

In the construction market, competitive pressures continue to make winners out of owners that have projects on the streets. Last week’s winner was Chartiers Valley School District, which received bids on its new middle school. The low general was again from Ohio, Mike Coates Construction. At $24.5 million CV’s middle school was under budget. It will be interesting to see how market conditions  vary when the district’s high school project bids later this year.

Faros Properties is bidding a couple million dollars worth of renovations to the former Allegheny Center property it is in the process of re-branding as Nova Place. The concourse and parts of the plaza are being re-purposed to be amenity spaces and tenant space for new restaurants that have been attracted. CMU is in the process of selecting a CM for a $5.6 million investment to convert the former Deardon Center on Fifth Avenue to mixed-use. Turner and Graziano are interviewing for the project.

Energy on the Rebound

Don’t give up on the energy sector as an economic driver just yet. Crushing declines in the price of oil and gas have hit the producers hard. There has been a pullback in the amount of space used by companies in the gas sector for two years or more. In early 2016, however, there are signs of life. Experts who follow the energy commodities point out that the historical trend with oil price plunges is for several big drops to occur, followed by reinvestment by the firms that kept their powder dry. Sort of like what Warren Buffet has done his whole career.

Bidding has picked up for some of the compressing/processing facilities in the midstream. In at least a couple cases, projects that were shelved in late fall have come back on the front burner. Similarly, the big energy project in the region is also reported to have been accelerated. The Shell cracker plant is definitely in the “believe it when I see it” category but the procurement suggests the final investment decision has been made, if not announced. Regardless of the timetable for announcement. This is what the site looked like from I-376 this morning:IMG_20160303_095117596

That’s a lot of work done. For those that can zoom in, the small square structures just to the left of the plumes from Shippingport are the Nova Chemicals plant about 2 miles away.

Elsewhere in the energy sector, Black & Veatch awarded a contract to PJ Dick for site prep, earthwork, concrete, roads, etc. for the $500 million Tenaska power plant to be built near I-70 in South Huntington Twp. of Westmoreland County. Packages are being bid on another gas-fired plant, a $900 million project by Combined Power Ventures in Cambria County near the town of Vinco. The low gas prices that are hurting the Marcellus Shale play are making combined-cycle plants more viable.

In commercial project news, Rycon Construction was chosen for the renovation of 1 PNC Plaza and PJ Dick was chosen for 2 PNC. The projects were valued by the PA Builders Exchange at $13 million and $15 million respectively. The PABX also reported that MBM Contracting was chosen to do Duolingo’s buildout of 15,000 sq. ft. at 5900 Penn. Construction is just starting on Ashley Capital’s 316,000 sq. ft. warehouse in Findlay Industrial Park. Oliver Hatcher Construction is the contractor. PW Campbell is preparing to start work on a 26,535 sq. ft. new dealership for Day Apollo Subaru in Moon Township.