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AGC's Data DIGest: November 12 – 18, 2013

Budget cuts hit federal, supplier demand for space; suburban, medical offices pick up

Editor’s note:  Construction Citizen is proud to partner with AGC America to bring you AGC Chief Economist Ken Simonson's Data DIGest. Check back each week to get Ken's expert analysis of what's happening in our industry.

Federal budget cuts are affecting demand for space by both the government and its suppliers. On Thursday, Lockheed Martin announced it “plans to close its operations in Newtown, Pa.; Akron, Ohio; Goodyear, Ariz.; and Horizon City, Texas; and four buildings on its Sunnyvale, Calif., campus….Since 2008, Lockheed Martin has…removed 1.5 million square feet of facility space….The facility closures announced today will further reduce the Corporation’s operational footprint by nearly 2.5 million square feet of facility space.” Also on Thursday, the Washington Business Journal reported, “In the past year, the federal government has shed roughly 831,800 square feet of space in an effort to downsize and move into more efficient buildings, according to Jones Lang LaSalle’s annual Federal Perspective report.”

In contrast, Costar reported last Tuesday that suburban office markets are reviving. “Since the beginning of 2012, suburban markets have accounted for a whopping 87% of office demand—which is 13% more than their ‘fair share’ based on the total market size compared with [central business district] office markets, according to data presented at CoStar’s recent third-quarter office review and forecast. Top-shelf submarkets are driving the suburban office recovery, including Waltham/Watertown in Boston, Northwest Austin, Bellevue near Seattle, and Katy Freeway West in Houston…Such markets make up just 19% of the office inventory but drew 29% of the demand over the last six quarters, according to CoStar data….Even developers are becoming active again in certain submarkets such as Raleigh, NC, where Duke [Realty] this week announced it will build another speculative suburban office project in its Raleigh Perimeter Park development.” And on November 6, CoStar reported, “Developers are finally ready to move forward on numerous medical office building (MOB) development projects as the new era of retail medicine begins under the new Affordable Care Act…Heightened demand for modern and more efficient outpatient medical office space is generating an uptick in both ground-up development and renovation of existing buildings. In some cases, health care providers are even repurposing vacant retail space in malls and shopping centers, according to Newmark Grubb Knight Frank's most recent Healthcare Real Estate Outlook.”

“About 16.5 million square feet of new [self-storage] warehouses are expected to be delivered this year, up from 8.9 million in 2012, estimates Shahzeb Zakaria, an analyst who covers the industry for Macquarie Securities,” the Wall Street Journal reported on Wednesday. “Sovran Self-Storage Inc….is on track to add 360,000 square feet of new space at 33 stores in 2013—more than double the amount it developed in 2010—and has plans to add up to 725,000 square feet in 2014.”

Consultancy IHS introduced the PEG Engineering and Construction Cost Index on November 7. The index is based on responses from 19 “procurement executives representing leading engineering, procurement and construction firms” as to whether several categories of material, equipment and subcontractor labor costs rose, fell or were flat in the prior month. A separate set of indexes tracks expectations for costs six months ahead. Values above 50 indicate more respondents experienced (or expect) rising than falling prices. In October, the materials/equipment index was at 51, the fourth straight month above 50 but down from 52.6 in September. The subcontractor labor index was at 56.4, up slightly from 55.8 and above 50 for the 22nd consecutive month. The indexes for prices six months ahead were strongly positive: 61.6 for materials/equipment (26th month above 50) and 66.4 for subcontractor labor (22nd month above 50).

About 36 million U.S. residents, or 11.7% of all Americans, moved between 2012 and 2013, the Census Bureau reported today in Geographical Mobility: 2012 to 2013. “The nation's mover rate is down from 12.0% in 2012. The decline in the nation's overall mover rate follows an uptick from the record low of 11.6% in 2011. That leaves the 2013 mover rate not statistically different from the 2011 rate.” Mobility is an important generator of demand for several types of construction and source of supply for construction workers. A comparison with the 2006 report shows that the West changed from destination to a net source of outmigration. The number of construction workers who moved dropped by 47% over seven years. This may indicate reduced employment opportunities (the number of employed workers fell by 21%) and/or less willingness or ability to move (inability to sell house, spouse unable to find a job).

Industrial Info Resources announced on Wednesday that its latest labor assessment “shows that an area of Southern California, specifically a 200-mile radius around Palmdale, located north of Los Angeles, is set to experience a significantly tightened labor market. Labor demand in this area is already on the increase, and is forecast to spike in 2015, in large part because of the increasing demand for renewable energy projects in the state. [The] analysis forecasts that the area's demand for eight major craft labor segments will increase approximately 97% from now through 2015, rising from 8.36 million man hours this year to 16.49 million in 2015.”

The Data DIGest is a weekly summary of economic news; items most relevant to construction are in italics. All rights reserved. Sign up at www.agc.org/datadigest.

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