Randy Southerland 2015-12-09 00:30:10
LEADING EXPERTS LOOK AHEAD TO 2016 The economic news for Georgia is good and getting better. Following the Great Recession and the collapse of the real estate market, Georgia’s economy had been trailing the rest of the nation. Those days are now over as growth has kicked into high-gear, and as business and industry are generating jobs and profits. In fact, Georgia will be outpacing the rest of the nation in 2016. The state can expect inflation adjusted GDP growth of 3.3 percent – slightly higher than the 3.2 percent estimated for 2015, according to figures from Selig Center for Economic Growth at the University of Georgia. “That is higher than what I’m expecting for the nation – about 2.5 percent U.S. GDP growth,” says Selig Center Director Dr. Jeff Humphreys. “This growth spurt is not only above the national average, but faster than the long-term national average of 2.9 percent,” he adds. Georgia has historically grown faster than the nation thanks to stronger population growth and the state’s accommodating business climate. “The advantage of doing business in Georgia is amplified in this slow-growing U.S. and global economic recovery,” adds Mark Vitner, Managing Director and Senior Economist at Wells Fargo Securities, LLC. “In a slow-growing economy, areas that are growing rapidly sell for a premium.” Over the past few years, Georgia has worked hard to make itself a good place to do business. From the new Caterpillar plant near Athens and the $1 billion Baxter facility in Covington to Mercedes Benz’s relocation from New Jersey to Atlanta and many smaller deals in between, the state has been on a winning streak. That success is likely to continue into the new year, according to Tom Croteau, Deputy Commissioner, Global Commerce, for the Georgia Department of Economic Development (GDEcD). “I’m not seeing a slowdown for 2016,” says Croteau. “Now, 2017 may be a diff erent story, but the things that are driving the majority of our activity right now are coming from areas like the automotive sector, automotive manufacturing, aerospace, aerospace manufacturing, headquarters activity, back office, regional headquarters activity and what we call FinTech and Health IT.” The state has experienced significant growth in aerospace (13 percent), food processing (21 percent), soft ware and technology (128 percent) and headquarters (110 percent), according to GDEcD figures. One of the strongest growth areas has been financial-related technology or FinTech. A full 70 percent of all U.S. financial transactions – 85 billion annually – are processed through systems operated by Georgia-based corporations. These “Transaction Alley” companies have invested more than $208 million and created 1,570 jobs just since 2013. In metro Atlanta, payment processing companies employ nearly 40,000 workers with more than 250,000 people working in finance-related occupations, with another 105,000 people around the world on the payroll of these Georgia companies. Georgia’s growth is also being driven by both large and innovative startup companies in areas such as healthcare, cybersecurity, mobile apps and advanced manufacturing. In fact, the state is regarded with some justification as the capital of Health IT. “The maturing of tech has created a high concentration of college educated workers, as well as a growing number of companies that can partner and foster development. The presence of high-level research universities, such as Georgia Tech, as well as a newly reinvigorated technical college system ensures a continuing stream of trained workers,” says Humphreys. The reality is that metro Atlanta has become a very attractive place for corporate executives to both live and work and that also makes it a good location for the types of regional headquarters that have been popping up. Georgia has also become the sweet spot for the auto manufacturing industry. While it hasn’t won a major plant since Kia opened in West Georgia, the location of Volkswagen in Chattooga, Tennessee, BMW in Greer, South Carolina and a new Volvo plant in Charleston means the state is ideally located for auto parts suppliers. In addition, many of them will choose the state to gain close access to the Georgia Ports. Savannah is already the fourth busiest container port in the country. Overall cargo volume jumped eight percent to 31.7 million tons last year. To keep pace, the Ports Authority is investing $142 million in expansion and improvement projects. “With the enhancements to the port, there will be more demand for warehouse and distribution space near the area, but also further into Georgia,” says Vitner. “The Port of Savannah has been a big driver behind the growth in the industrial market on the Southside of Atlanta and increasingly around Middle Georgia.” GROWTH IN THE CONSTRUCTION INDUSTRY This growth bodes well for construction, and contractors are already reaping the benefits. In just one week, McCarthy Building Companies, Inc. submitted proposals for three major construction projects, according to Kevin Kuntz, President of the Southeast Division. “We’re seeing a lot of opportunities in diff erent sectors coming out that is actually work that gets put in place in ’16 and ’17, which is really positive,” he says. “There is a lot of activity down at the (Atlanta) airport. There’s the rebuilding of the north/ south garages – which is a big, big project. We also are seeing some more activity again in higher education, which was really kind of quiet through the recession.” Improving business and profit margins for construction companies are occurring across the board, according to Douglas Rieder, President and Founding Principal of Sterling Risk Advisors, which handles surety bond placement and compiles an annual survey of the construction industry. Sterling’s annual survey of clients show a trend of improved financials and an ability to get construction contingency funds (a percentage of a contract value set aside for unpredictable changes in the scope of the work) from clients. “When things get tight not only do they cut margins, but they also cut out any normal level of contingency,” explains Rieder. “Now the data is showing that margins have improved to really healthy levels.” The boom has been largely fueled by a rising tide of multi-family construction. You can find increased building in just about every city in the state. From Augusta to Macon to Athens, midand high-rise apartments have kept builders busy. In Rome, the downtown area has been the site for a flurry of historic renovations with the conversion of older buildings into mixed-use projects – retail on the ground and living spaces above. So far, all of these have been apartments or one-off , single-family living spaces for owners. Now, the city is getting its first new condo development. The Loft s at Third and Broad, developed by veteran Rome entrepreneur Ira Levy, will include six retail shops on the street level and 26 condos on the second and third floors. “Right now, he’s going through the (permitting) process,” says Ann Arnold, Executive Director of the Rome Downtown Development Authority. “He just finished with historic preservation review for the exterior and he’s doing pre-sales. He has to have 60 percent to get his financing through the bank, but he plans to start construction next year.” With more than 200 living spaces already built in the downtown district, these condos and two other apartment projects are set to add even more. “I don’t see that slowing down,” says Al Petrangeli, Division President & Regional CEO - Southeast Region of Balfour Beatty Construction. “Clearly the housing market is the biggest leading indicator that drives the construction business. From additional revenue for the state to spend on their capital projects, school districts spending on K-12, the higher education system and the municipal entities – all have more money to spend.” JOB GROWTH ACROSS SECTORS One reason that building will continue is employment. Aft er a long dry spell the state is once again a jobs generator. “Last year, metro Atlanta added 88,000 new jobs, which is historically very strong,” says Kerry Armstrong, Senior Vice President with Pope & Land Enterprises. “Surprisingly, the inner core helped lead that charge. The job growth in Atlanta proper was at new levels not seen in quite a long time.” Job growth resembles pre-Great Recession days but, most observers agree, it’s a diff erent kind of employment market. “The job growth that is occurring now is built on a broader base of economic activity,” says Dave Stockert, CEO and President of Post Properties. “Historically, Atlanta had a pretty big component of construction and real estate-related activities and the downturn flushed a lot of that out. And so, as we built back to good job growth, it hasn’t been built on this dramatic recovery in real estate. It’s light manufacturing, technology and other things.” The boom in home building and home values is also driving another area of expansion – small business. Most startup entrepreneurs begin by using home equity and personal credit to finance their businesses, according to Humphreys. While the upward climb of jobs will stabilize and eventually begin to decline, nobody is predicting the kind of devastating collapse that was seen in the early 2000s. The state will experience a 2.3 percent increase in jobs during 2016 – down slightly from the 2.7 percent uptick in 2015 and 3 percent in 2014. Companies hold off on hiring and focus on driving higher productivity with their existing crop of employees, according to Humphreys. “There was a lot of catch-up going on in 2014 to 2015 that boosted the numbers,” he explains. In addition, business profits are not as robust as many companies had expected and that is likely to create a new wave of caution when it comes to hiring. Georgia also faces its own economic headwinds in the impending military cutbacks at Fort Benning and Fort Stewart. While reduction of troops and supporting civilian personnel will be felt most acutely in Columbus and on the coast, they will drive down the statewide employment numbers. With a large percentage of the new jobs being office, there has been a surge in office construction. That has helped drive down the vacancy rates of existing building stock, while also stimulating the construction industry with new office campuses. “Some of the bigger relocations and job growth targets are built-to-suit, pre-leased corporate campus arrangements, so the impact on the vacancy in metro Atlanta is surprisingly small,” says Armstrong. “When you see Mercedes Benz, State Farm and Porsche moving in, all those are new facilities for the most part.” Office vacancy rates have fallen from around 20 percent to a more manageable 13 to 15 percent in many submarkets. “In the 10 percent range someone gets brave and builds something speculative,” says Armstrong. “In the next two years, you’ll begin to see a little bit more speculative developments in various specific submarkets. Virtually all of that is in Central Perimeter and inside the Perimeter, although you’re beginning to see boundaries expand a little bit into the high growth areas like Alpharetta and into Gwinnett and certainly up towards Kennesaw (in Cobb County).” REAL ESTATE: FROM SINGLE-FAMILY TO MULTI-FAMILY When it comes to real estate, the apartment market has gotten the lion’s share of attention. It was the first sector to come out of the recession strong and the proliferating number of high-rise towers in metro Atlanta has certainly captured the headlines. Even before the current boom got underway, private student housing was already going strong in university towns such as Athens and Macon. The guaranteed market provided by students was appealing to financial institutions that wouldn’t touch other types of multi-family projects. “It’s very good in multi-family with rent growth on the order of six or seven percent,” says Stockert. “It has been a really long time since we’ve had that kind of growth.” The confidence in apartments has been rewarded with occupancy as high as 95 percent in some submarkets across all product types. That demand has allowed developers to command rents above the $2 per square foot ceiling. While the numbers are rising, they have still not reached a level that would indicate overbuilding. Migration to the state is on the uptick. The 20-county metro Atlanta region is expected to hit eight million by 2040, according to a long-range forecast from the Atlanta Regional Commission. That’s up from the agency’s own 2011 forecast, which had estimated population would grow from the current 5.5 million to 7.8 million. More people generates demand for all housing types. With 10,000 multi-family units being constructed annually, and just 20,000 single-family homes, the demand is still in balance, according to Stockert. “The one thing that worries me is we’re building a lot of urban, super high-end product and a lot more high-rises in metro Atlanta than we have ever built before,” says Stockert. “Some of it’s the natural densification of this metro, but it’s been surprising how high rents have gotten. By the end of the cycle, it’s highly likely we’ll hit $3 (per square foot) in some projects. If I was watching one part of the market we’ll over-build, it’s the super high market because the number of people who can afford them gets smaller.” Single-family homes have also improved – particularly in markets with good schools and other amenities. New home construction has been constrained by a lack of available and affordable land and a smaller number of buyers who can obtain mortgages. “We still haven’t hit the normal market yet as far as housing starts,” says Eric Masaschi, Vice President of Land Acquisition and Development for CalAtlantic Homes. “There were 60,000 homes started back before the downturn and right now we’re probably going to build about 18,000 new single family homes this year.” A “normal” market would produce 25,000 to 30,000 new homes annually, he adds. Atlanta was once dominated by small local builders, but those firms are largely gone. They have been replaced by large national firms that are working hard to be the “biggest,” according to Masaschi. The influx of aggressive and well-funded national builders opens up new opportunities for the engineering profession. “’One of the things that our engineers ask us is - when are you going to bring us our next deal?’ The best way for you guys to get more work as far as the single-family residential market is to bring a land deal to us,” he advises. Engineers can also develop business by helping developers navigate the permitting process and finding new ways to reduce costs through value engineering, he adds. For engineers and the clients they serve, the coming year promises new opportunities and an improved business climate. For perhaps the first time in a decade, the economy is hitting on all cylinders and driving every market forward.
Published by American Council of Engineering Companies of Georgia. View All Articles.
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