Category: Construction news

Construction Economic Rebound in March: Vaccines, Jobs, and Manufacturing

Good Friday began with good news from the labor market. The monthly Employment Situation Summary was released by the U.S. Census Bureau and it showed that employers had added 916,000 jobs in March, the largest increase since August 2020. The gains in employment were spread across the spectrum, with the largest increases in hospitality (280,000) and construction (110,000). Unemployment decreased to 6.0 percent, with 9.7 people unemployed. That’s 4 million more unemployed than at the peak in February 2020. A total of 8.4 million fewer people were working in March 2021 compared to February 2020, meaning that 4.4 million people are no longer in the workforce. Although a portion of those who left the workforce have retired, the largest share of those out of the workforce (most of which are women) are likely to need to be re-employed once the slack in the economy has recovered. The three-month average for job creation suggests that the pace of hiring is accelerating rapidly but would need to continue for 15 months to two years to return to the same level of employment that existed pre-pandemic. Should the March pace continue, that level would be reached at the start of 2022.

Whether the March pace continues is largely a function of how quickly vaccines can be distributed to herd immunity and how well the virus spread can be contained. The current trajectory for vaccination indicates that vaccine supply will outstrip demand in May. The pace of virus spread, however, suggests less optimism. Infections are growing at an alarming rate in northern and midwestern states that have relaxed limitations on public gatherings. In virtually every one of those states there have also been an decline in mask wearing, even though mask requirements have not been removed. The economic progress that has occurred in February and March is likely to be stalled in April or May if the pace of infections remains on the current trajectory. That’s not a prediction so much as an observation of similar periods of relaxation and COVID fatigue that occurred in late summer and during the holidays. COVID-19 has proven to be easy to forecast, with very consistent outcomes following increases and decreases in infections. The good news in spring 2021 is that vaccinations should shorten whatever spike occurs and the economic momentum should rebound quickly if a slowdown follows in the coming month or two.

New hiring increased again in March following the holiday slowdown.

There were other reports on the economy’s rebound this week. On April 1, the Institute for Supply Management (ISM) said its index of national factory activity jumped to a reading of 64.7 last month from 60.8 in February. That was the highest level since December 1983. A reading above 50 indicates expansion in manufacturing, which accounts for 11.9% of the U.S. economy. Economists had forecast the index rising to 61.3 in March. The survey’s manufacturing employment gauge shot up to its the highest reading since February 2018. The ISM survey also found significantly more firms hiring than not. The outplacement company, Challenger, Gray & Christmas, showed planned layoffs by U.S.-based companies dropped 11% to 30,603 in March, the fewest since July 2018. Through the first quarter planned layoffs plunged 35%, compared the October-December period. At 144,686, job cuts last quarter were the fewest since the fourth quarter of 2019.

Industrial construction in Washington County was boosted by the start of construction of HW70, a 28,200 square foot spec warehouse in Bentleyville, and Aragra’s new 50,000 square foot facility in Starpointe Business Park. W. K. Thomas & Associates is building the Aragra facility. Rycon Construction was the low general contract bidder at $11.5 million on the $17.5 million Hillman Library Phase 3 at Pitt on Wednesday. TEDCO was successful on the new $2 million PNC branch on Broadhead Road in Moon Township. Arco/Murray Construction is taking a 35,000 square foot expansion and renovation of Frito-Lay’s facility in Thomson Business Park through the entitlement process Cranberry Township. Jendoco Construction started work on the $10 million Distillery on the South Side. Two multi-family projects got underway in March in the city. Elford Construction started work on RDC’s $60 million 334-unit Brewer’s Block Apartments and PMC Property Group began renovating the Allegheny Building into 177 apartments. Continental Building Co. started construction on the first 78,000 square foot building at Elmhurst Innovations Center.

Be Careful with the Data: February Was Not That Slow

On Friday, the Pittsburgh Business Times ran an article on construction activity in February that quoted Dodge Data & Analytics’ report that a mere $36 million in construction started in that month, The lede was that construction declined 88% year-over-year. (In the interest of full disclosure, I worked for what was formerly the F. W. Dodge Division of McGraw-Hill for 14 years at the beginning of my career.) Given the increased level of activity in the construction market since February 1, this headline and data seemed out of step with reality. I did a few minutes research and found that February was indeed down significantly compared to the same month in 2020, but the conclusion of the article was misleading. That’s not the Business Times’ fault. They are relying on data that is very inaccurate.

The construction market in Pittsburgh is rapidly picking up steam as spring begins. That’s a great indicator for 9-12 months out. The optimism and activity are better than what would have been unexpected just 90 days ago; however, the improved prospects for recovery will do little to improve the prospects for 2021. This year is going to be tougher financially than 2020 because the extreme slowdown in the second and third quarters of last year will be echoed in the first half of 2021. Construction businesses need data to manage 2021 so that they can be best positioned to take advantage of what should be a booming 2022. And bad data is worse than no data.

So here’s the data Tall Timber has from its research of building permits, construction reports, architects, owners, and contractors in the region:

Starts ($M) Variance
February 2020 $370.1
February 2021 $185.5 -49.9%
March 2020 $237.9
March 2021 $354.3 ** 48.9%

** Actual through March 26

The data in February 2020 was a good indication of the health of the market. Projects that were permitted or awarded that month included the $80 million Arsenal 201 apartments, a $5 million Behavioral Health Unit at Ohio Valley General Hospital, $25 million shell building for Krystal Biotech in Findlay Township, The $20 million airport micro-grid, $10 million Kraft Heinz research kitchen renovation, $12 million Heinz Field expansion for the Steelers Pro Shop, and a $16 million slag processing facility at Allegheny Ludlum’s Brackenridge facility. It was cross section of the economy. Of course, that was all about to change. The impact of the pandemic showed up almost immediately, as starts in March (typically a much busier month than February) fell off by 35.7%.

That March decline makes sense now, but at the time, such an immediate slowdown would have seemed unlikely. Bear in mind that our methodology for construction starts seeks to identify when work starts or is about to start. We are not tracking construction put in place, so the mandated shutdowns that followed the outbreak should not have influenced March’s start data. The preconstruction process is lengthy and I would have expected that starts would remain higher for a few months when a downturn began. Such was the jarring nature of COVID-19’s impact on the economy that projects were stopped in their tracks, even if they had already bid. Seeing that data by mid-April 2020 informed me that work was going to decline precipitously in 2020. At that point in time, my forecast for 2020 was for 30% lower start volume; but, as it worked out, the market held up better, falling “only” 17% year-over-year.

On the other side of the coin, the optimism that began to build when vaccines were announced in December 2020 has taken a few months to translate into construction starts. Like in February 2020, the work started over the past 30 days represents what the post-COVID economy may present: $60 million in new industrial properties, including Suncap’s and Northpointe’s developments of over 200,000 square feet; a handful of emerging tech fitouts, including multi-million expansions by Intervala at RIDC Westmoreland and Google at Bakery Square.

Construction companies feel good when their bid boards are full but analysis isn’t about feelings; it’s about data. Bidding is a predictor of activity to come. This coming year will see economic growth that comes in fits and starts. It is easier for executives to make decisions about opportunities if they are able to see February’s activity accurately measured, and the expected gains in March follow suit. Put in the context of the conclusions drawn by the author of the Business Times article, contractors that believe the market is slow because their activity is slow can make incorrect decisions about what and how to bid. The value of accurate data is that you can judge how you are doing against the market, rather than your own observations. To wit, if your company worked primarily in the office market, you might think there were few construction opportunities available in March, but there were plenty, just not in the office market.

I’m not familiar with Dodge’s methodology anymore, other than the fact that they don’t employ local reporters as they once did. Perhaps there will be a revision issued in April that shows the February data was higher or a much higher March that shows that the February data was just a timing issue. Regardless of whether the grossly understated February report changes, be careful about the data you use to measure the market in 2021. It will be a volatile and potentially active year. We already know that pricing is out of kilter, which could create a halting recovery from 2020’s malaise. Perhaps you are going to put your head down and hustle your way through 2021, but if you are the type of businessperson who wants to understand what the market is doing, be careful of the data you use. If it seems like the information isn’t matching your reality, look closer. This is not a year you want to miss the market.

Construction Inflation Worries: It’s a Matter of Timing

During the debate over the American Relief Plan, fiscal conservatives raised the worry that adding so much stimulus into the economy was a risk for overheating the economy and triggering inflation. Coming on the heels of a year in which gross domestic product (GDP) fell 3.5% (and almost 10 million people remain unemployed), a little overheating is probably not the most sellable worry. At the same time, there are signs that unusual inflation levels could be on the horizon. There isn’t much question in my mind that the relief included in the $1.9 trillion package was needed to get the U.S. economy to the other side of the pandemic later this spring or early summer, but there are positive indicators already that the economy is bouncing back. Government stimulus, whether in the form of direct payments or monetary policies like quantitative easing, are meant to be oxygen for the economic fire. If the aid ends up being gasoline instead, particularly in an environment that continues to have supply restraints, demand for goods and services can get so far ahead that raising prices is unavoidable. That’s a real concern and evidence of such overheating is widespread in the construction industry.

As Congress was debating the ARP, the Bureau of Labor Statistics released its inflation report for February. You can view a helpful table of key materials done by the AGC here. The headlines weren’t shocking but the overall producer price index (PPI) jumped 2.8% year-over-year. PPI growth for most construction-related indexes was relatively tame (the PPI for nonresidential buildings was at 1.2%) but there are smatterings of runaway inflation in several key materials. Industrial metals, especially steel, have seen big increases, as has diesel fuel. We’re talking about jumps of 20% to 45% year-over-year. Looking at the underlying causes of the inflation should calm your nerves. Manufacturing capacity was cut back last year and manufacturers let inventories run down. As production has been heating up in recent months, capacity utilization has climbed back to pre-pandemic levels for many basic industries. When the economic recovery kicks in higher gear in a few months, capacity would be swamped but manufacturers have already begun reopening plants. By the third quarter’s end, there is likely to be an excess capacity again in steel, aluminum, and fuel.

That’s good news, unless you have to price and procure a major project right now. The key worry about inflation at the moment is that out-of-whack supply and demand could produce pricing that breaks the budget on projects trying to get out of the starting gate this spring. Some of the projects won’t be able to get out of the way of the short-term spikes. For owners looking to get out of the ground in later 2021, don’t be hasty about the springtime budgets. There is no guarantee that prices will moderate by fall but it’s more likely that today’s prices will be higher than after mid-year.

The outlook for long-term inflation hasn’t much changed since last year. Fed Chair Jerome Powell tried very hard to express the central bank’s caution about raising rates too soon on Wednesday. He made a very good point about growth, which was that if interest rates are hiked earlier than expected because economic growth (especially job growth) is stronger than expected, that will be a good thing. Fears of inflation of the kind seen in the 1970s are otherwise unfounded. There are big differences in how the global economy works in the 2020s, most notably that the economy is global. Spikes in demand or supply shortages can be met by corporations across the world. That wasn’t the case in 1975. Materials that have tended to drive inflation spikes – industrial metals, oil, and gas – are in long-term secular oversupply cycles. Productivity is likewise less likely to balloon today. Fifty years of technology advances have leveled out the productivity gains that have pushed wages in the past. Inflation is a risk to the economy but, at the moment, a far lesser risk than the public health crisis.

Pittsburgh’s construction industry is rapidly heating up. The industrial market continues to expand. Miller-Valentine Group has started construction on the $15 million warehouse at Westport Woods for NorthPoint Development. Stefanik Properties LLC has started site work on the 150,000 Stefanik Industrial Park in Center Township, Beaver County. The $33 million Gateway Middle School project is out to bid. Elizabeth Township Municipal Authority awarded Mele & Mele & Sons $19.8 million in contracts for new pump stations. TBI Contracting has started work on the new $2.6 million Frontier Railroad HQ in Charleroi. Massaro Corp. was selected to renovate the 20th floor at Highmark’s headquarters. Mosites Construction will be the contractor for the $5 million renovation of The Depot in Tarentum. UPMC is taking proposals from Mascaro, Massaro, PJ Dick, Rycon, Turner, and Whiting-Turner on the $25 million Children’s Hospital Heart Vascular Institute. A. W. McCay is renovating Fox Chapel Plaza for the $2.5 million Goldfish Swim Club. Yarborough Development was awarded the $1.6 million Norwin High School Aquatic Facilities renovation.

A Good Week for the Economy and Pittsburgh Construction Market

Let’s start with the bad news. The number of people filing for first-time unemployment compensation continues to be high. Even as many other metrics of the economy are turning higher quickly (see below), unemployment claims remain stubbornly high. Last week’s total was down substantially from the week before, to 720,000, but the number of those on unemployment and extended unemployment stayed above one million for the week.

Now for the better news. Friday’s Employment Situation Summary (i.e. the monthly jobs report) was a big surprise to the upside. Here’s an excerpt from the National Outlook column from the upcoming March/April BreakingGround:

Employers added 379,000 jobs in February, boosted by a gain of 355,000 jobs in leisure and hospitality hiring and the decline in infections. That bodes well for a strong recovery mid-year if recent loosening of mitigation measures does not trigger another surge in infections in spring. Among the nuggets of information below the headline: the number of people working from home due to the virus outbreak declined by 0.6 points; labor force participation remained weak at 61.4 percent; and the number of people reported not working because their employer closed due to the pandemic fell by 1.5 million to 13.3 million.

Economic news is better because the outlook for the pandemic is better. More than 2 million new vaccines were administered on 3 different days last week, bringing the 7-day rolling average to just below 2 million per day. That pace is advancing even as the manufacturing of vaccines is still in the ramp up stage. The other big driver of optimism is the passage of the $1.9 trillion American Relief Act, which passed Congress today and will be signed shortly by Pres. Biden. The bill includes $1,400 direct payments to people making less than $80,000 per year (or $160,000 as a couple), funds more COVID vaccine distribution, and provides a $3,600 child credit for 2021. Economists watching the progress have significantly upped forecasts for growth this year, with some (like Goldman Sachs) predicting GDP growth of 6%. Those more upbeat forecasts rest primarily on the fact that the U.S. consumer’s life is going to get much better if the current arc of things continues. With 70% of GDP coming from consumer spending, the charts below demonstrate why the bolder predictions seem plausible. Personal savings are up. Wealth was conserved (and mostly increased) during the pandemic. And those with the greatest need for assistance are about to get it. There are long-term risks associated with the amount of government borrowing and spending that has been required to support the economy for the past year. If, as many predict, Americans respond to returning to something like normal later this year, inflationary pressures could arise and put pressure on the economy in 2022. For now, those concerns are on the back burner.

Pittsburgh’s construction economy had begun feeling this optimistic outlook a bit before last week, but last week was a good one for the market too. Ahead of reviewing its Institutional Master Plan with the Pittsburgh Planning Commission, the University of Pittsburgh moved several of its $100 million projects off the back burner. Two of the major projects on the upper campus, which Pitt is calling Victory Heights, will begin moving forward again. The Chilled Water Plant, which will be built by Turner/Mosites, will get a guaranteed maximum pricing round within the month and is scheduled to start construction in September. The Human Performance Center, for which Massaro/Gilbane is the CM, will be designed over the next year or so, with construction in fall 2022. Construction is expected to start in October 2021 on the Hillside Student Housing and Garage, which Mascaro Construction will build. Mascaro is also CM for the Student Recreation and Wellness Center that should begin in spring 2022.

In other college project news, Mosites Constrution took bids on the $45 million Forbes Beeler dormitory at CMU. Duquesne University short-listed Rycon Construction and PJ Dick as CM finalists for the $50 million College of Osteopathic Medicine. Turner Construction was awarded the $8 million Google third floor renovation at Bakery Square. Shannon Construction was selected for the $3.8 million TI for Intervala at RIDC Westmoreland. F. J. Busse Co. will build out the new $1.5 million Huntington National Bank branch in the Strip District. Landau Building Co. was awarded the new Bank of America branch in Bridgeville. AIMS Construction was selectedfor the $1.2 million Africana Studies renovation at Pitt. Wyatt Inc. announced that it will build a new 120,000 square foot millwork manufacturing facility in South Huntingdon Township, Westmoreland Co. Whiting-Turner started construction on the 120,000 square foot buildout of the Goodblend cannabis facility at the Northside Commerce Center. Whiting-Turner also took bids on a $100 million buildout for Krystal Labs in Moon Township. Massaro Corp. was selected as CM for the $50 million Fifth & Dinwiddie West development in the Hill District. Rocky Bleier Construction Group started work on the $5-8 million Richard G. Laube Cancer Center expansion at Armstrong County Memorial Hospital.

In the public sector the airport’s Terminal Modernization Program got a kick start with the release of an $85 million steel and concrete decks package, due April 14. The Port Authority also released a $17 million Light Rail Transit Station renovation program, due April 1.

Digesting Economic News for the Pittsburgh Construction Economy

Friday will bring the first jobs report on 2021. The January Employment Situation Summary is expected to show modest job gains. If today’s report on January private payrolls from ADP is an indication, the number of jobs created is likely to be above the consensus estimates. After December’s dip in employment, economists were expecting 49,000 additions to private payrolls in January but ADP reported a bump of 174,000 jobs. First and foremost, that’s good news. The late 2020 surge in infections and hospitalizations that followed the Thanksgiving holiday brought fresh rounds of restrictions and, more important, resulted in people voluntarily avoiding places where people gathered. That was bad news for bars, restaurants, airlines, hotels, etc. A rebound from that suppressed demand was expected and, to the degree the bounce back overshoots expectations, it’s good to have job creation recovering ahead of the vaccination rollout.

Last week, the first reading on GDP for the year was released by the Commerce Department. It showed that output declined by 3.5% in 2020. That estimate will be updated two more times but most economists don’t expect much to change. The decline was the steepest since 1946, when the U.S. was retooling industry from wartime to peacetime production. The disruption to the economy in 1946 was different than the pandemic of 2020, but there are similarities in that the dropoff was caused by non-economic factors. That provides additional optimism about the recovery in 2021, as there was less destruction of wealth and capital after the pandemic hit, which will give fuel to the rebound later this year.

The improving economic conditions match up to the increased levels of activity from tenants in commercial real estate, including a number of large space requirements in the market; and it helps explain the increase in design activity at regional architectural and engineering offices.

The Airport Authority announced some very good news in its Blue Sky email Tuesday. Last year’s delay of the $1.1 billion Terminal Modernization Program allowed architects and engineers time to produce 90% design documents by the end of January. Construction documents will be completed as bid packages are prepared but the construction management team of PJ Dick/Hunt and Turner will be releasing bid packages in March for the next phase, which is the multi-modal transportation center. The terminal project’s progress is good news for the Pittsburgh construction market, which should see another mega project, UPMC’s Heart and Transplant Hospital, get into the market in late 2021. With the proposed billion-dollar modernization of the US Steel Mon Valley Works on hold, these two mega projects will be major job creators in 2022 and beyond.

PIT’s Terminal Modernization Program Ready to Move Ahead

In other construction news, Suncap Property Group is moving ahead rapidly with its two proposed industrial developments. Graycor Construction has started construction on a 278,000 square foot distribution center in Findlay Township. Meridian Design Build will begin work on a 220,000 square foot distribution center – rumored to be for Bayer Healthcare – at the Victory Business Park in Clinton Township, Butler County. Bids will be taken February 5 for Duquesne University’s new osteopathic medical school. Contractors bidding the project are Jendoco, Massaro, PJ Dick, Rycon, and Turner. Construction is not expected to start until end of 2021.

Pittsburgh’s Construction Year in Review: 2020

Construction and development were on a roll coming into 2020. While the economy was certainly showing signs of age, the pipeline of projects to be built had swollen to the point that it appeared that the Pittsburgh construction market would skate through any downturn that might come in 2021 or 2022. Of course, the downturn that materialized 75 days into the new year dashed that idea and laid waste to the economy. By summer, the hopes for a booming 2020 were gone. The human costs and loss of businesses and jobs have been devastating. From the perspective of construction underway and starting in 2020, however, Pittsburgh’s market performed better than feared.

Construction starts recovered stronger than was expected at mid-year. Residential construction was up sharply for single-family homes. New permits for single-family construction rose 12.7 percent year-over-year, to 3,337 new homes. Both single-family detached (2,337 units) and attached homes (1,000 units) saw increases. A steep decline in multi-family starts brought the overall total units started down to 4,138 units, more than 1,000 units off the 2019 pace. Apartment properties faced significant uncertainty throughout 2020 because of the COVID-19 virus and the economic downturn that resulted. Job losses, eviction freezes, and the maddening politics surrounding economic aid created an uncertain environment for landlords and developers. That uncertainty, along with significant municipal and state-level delays in the entitlement process, pushed at least 900 planned units from 2020 construction into 2021.

Nonresidential/commercial construction saw sufficient improvement in the last months of 2020 to bring construction volume within shouting distance of $4 billion. The $3.923 billion in construction of commercial and nonresidential building structures was nearly $1 billion less than was forecast at the beginning of 2020; however, the final tally was more than 10 percent higher than mid-year predictions for activity.

The prospect of widespread vaccination by mid-year is giving owners a view to recovery and boosting activity. Architects and engineers are reporting increased billing and bidding. The Biden administration’s priorities and slim Congressional majorities increase the likelihood that a major infrastructure package will boost construction spending and hiring by spring. That, in turn, seems to have been an impetus for progress on several of the region’s major projects, including the Pittsburgh International Airport modernization, First National Bank’s new headquarters in the Lower Hill District, and UPMC Heart and Transplant Hospital. The region’s two major hospital systems, UPMC and Allegheny Health Network, have upped construction budgets for 2021 and the following years, which is a good leading indicator for the construction industry.

Highwoods Properties is presenting plans for its new 65,000 square foot East Liberty Centre office building to the Zoniong Hearing Board on Feb. 18. PJ Dick is the construction manager. The presentation can be viewed at the Zoning Hearing Board site. AHN selected Sentinel Construction as the CM for its new $10 million parking garage at the new Wexford hospital site in Pine Township.

Hot Housing Market – No Bubble in Sight

As 2020 ends, the star of the construction industry is clearly the housing market. New starts are up and home prices have soared over 15% year-over-year. The hot market has started to raise fears of an overheated market, but there is no evidence of anything like a bubble forming. In fact, the basic economics suggest that the hot streak will continue.

Price appreciation is being driven by a home inventory that has been steadily shrinking for five years or more. Too few empty nesters are selling their homes and new construction has been (and is) constrained by limited availability of land and lots. Demand for homes has been increasing as the Millennials buy homes at a brisker pace. And COVID-19 accelerated all these trends by the increase in work-from-home and the time spent sheltering at home since March 2020. Other factors, like home sizes increasing again and a surge in remodeling, have also pushed up prices. What hasn’t pushed prices is a surge in speculation such as we saw from 2003 to 2006.

Wells Fargo Economics Group pushed out a great commentary on the housing market yesterday. While it looks forward to the market in 2021, the commentary also contrasts today’s conditions with those of 2007, when the bubble burst and left millions of people in economic ruin. One of the points Wells Fargo highlights is the difference in lending environment between the two periods:

Perhaps the greatest difference with what was seen in the bubble years is the greater discipline on the part of lenders. Mortgage underwriting tightened at the onset of the pandemic and remains fairly tight today. The average FICO score for conventional mortgages originated for the purchase
of a home was 758 in November, according to Ellie Mae.”

As context, the average FICO score in 2006 was around 630, although the median score was above 700. In 2006, it was also commonplace to find lenders that didn’t require income documentation and that lent 110% of the value of the home. There was no real credit justification for those kinds of practices but the robust annual price appreciation was a rationalization that all but the most disciplined accepted. Today’s appreciation levels are nearly equal to those of the bubble years, but the driver is real demand squeezing supply. Prices may level off or back up in the next few years. Father Time is undefeated and Baby Boomers will sell their family homes at some point. That should lead to an increase in supply that will soften prices. That trend may also unfold slowly,  meaning that increased demand will keep up with the inventory growth. But, as long as lenders underwrite loans with the intention of being repaid, the supply and demand dynamics aren’t going to bubble over.

That’s great news for an economy finding its footing for recovery. We saw how a damaged housing market can drag recovery down from 2009-2014. Assuming the vaccination proceeds as expected, we’ll see a housing market that leads recovery in 2021.

Read the full Wells Fargo commentary here.

More Signs of Thawing: Pittsburgh Construction Market 2021

Let ‘s start this optimistic post off with a dash of bad news. Even as vaccines begin to be administered worldwide, the surging rate of infections and hospitalizations are dampening the economic recovery from COVID-19. Last month, retail spending fell 1.1% from October, which was down 0.1% from September. The Commerce Department report from December 16 showed weakening across most retail categories. This morning, initial claims for unemployment jumped much higher to 885,000, marking the second week in a row above 850,000 claims and the fourth week in six with an increase from the previous week. Vaccines will help bring down the terrible human toll over the next few months. It’s going to take government intervention to reduce the economic toll until the vaccines do their job. The pandemic aid legislation being negotiated in Congress now is critical to extending the bridge to the end of the pandemic.

The fact that the end of the pandemic seems to be in sight is helping owners make decisions to proceed with construction projects. Bidding is still very light, although that could be a function of the holiday season as much as the economic outlook. Permits for new construction have picked up and contracts are being awarded for projects that had been on hold. Some, like Millcraft’s $60 million new hotel at the Rivers Casino, are projects that were about to start. Others, like the airport Terminal Modernization Program, were still in the design stage. Massaro Corp. is expecting to re-start construction on the casino hotel by the end of the first quarter. Preparation for the airport project should resume and the next major structural bid packages should go out to bid mid-2021. You can read about the agreement with airlines to fund 2021 operations at Blue Sky News.

Commercial real estate is seeing the most thawing. That may be a surprise, given that hospitality and office properties have been greatly impacted by the pandemic and vacancy rates are rising nationally (see below); however, the local developers are bullish on Pittsburgh’s post-COVID economy and are investing through the downturn. In addition to its joint development with RDC on the Vision on 15th, Burns Scalo Real Estate has authorized NEXT Architecture to design a 150,000 square foot first building in the Diamond Ridge development in the Parkway West Corridor. Elmhurst Group’s purchase of land for the Elmhurst Technology Center was approved by the URA. Continental Building Co. will build the 175,000 square foot tech flex center. Planning commission approved a new design for the $200 million 1501 Penn Avenue office building, to be built by PJ Dick/Dick Building Co. joint venture. That project still needs an anchor tenant before construction proceeds.

Source: CoStar, Wells Fargo Securities

The industrial market has already thawed. Take a preview peak at the Regional Update from the upcoming BreakingGround for January/February.:

“It’s not a surprise that industrial development is continuing to add new product. After the addition of roughly one million square feet of distribution space during the past two years, occupancy remains nearly full for Class A warehouse. Amazon is the poster child for the boom in distribution and fulfillment centers. The ecommerce giant recently signed a lease for 300,000 square feet at the former Sears Outlet in Lawrenceville and is reported to be the user for the 850,000 square foot center being planned by Hillwood Properties at the former Westinghouse Research Center in Churchill, and a 278,000 square foot distribution center proposed by Suncap Development in Findlay Township. Additional large distribution centers are in the pipeline throughout the region for other users as well. Since the fall the 400,000 square foot Clinton Commerce Center Building 5 been started, along with the first 150,000 square foot building at Hempfield Commerce Center. Suncap also purchased land to develop a 250,000 square foot distribution center, likely a build-to-suit, at the Victory Road Business Center in Butler County. Other large users of warehouse space are in the market but have not announced site selections as the year ended.”

Even at the smaller end of the spectrum, industrial activity is up. W. K. Thomas & Associates purchased land in the Victory Road Business Park to build a 25,000 square foot warehouse. W. K. Thomas is also building a 225,000 square foot expansion of the Altmire Trucking facility in Eau Claire, PA.

In other construction news, Amazon’s lease at the Sears Outlet unfortunately cancelled the planned $25 million conversion that Rycon Construction was scheduled to do. Rycon was awarded the $8 million Light of Life Mission expansion and renovation. Turner Construction was awarded the $3.2 million UPMC Passavant Cranberry lobby renovation and a $2.5 million fitout for Curology. Allegheny Health Network selected A. Martini & Co as CM for the $1.2 million Urgent Care Center at Suburban General Hospital. Landau Building Co. was selected as as CM for the $1.8 million AGH Emergency Dept. CT Scanner. Volpatt Construction was awarded the $1.25 million AGH hybrid operating room.

More Data Points for the Building Recovery

There is no question that the state of the economy is a mixed bag as 2020 winds down. This week will see the release of a number of key economic metrics, including the monthly jobs report on Friday morning. Thursday morning, the data on unemployment claims has good news, relatively speaking. During the week of Nov. 28, there were 712,000 new claims for unemployment insurance. That’s terribly high compared to anything like normal but it’s a 75,000 claim decline from the previous week, and a reversal of the recent trend of accelerating claims. There were 350,000 fewer persons receiving any form of unemployment insurance, another positive step. For perspective, however, it’s worth noting that the 20.16 million people on unemployment last week compares to 1.5 million one year earlier. Clearly lots of ground to make up.

Source: US Department of Labor

The Institute for Supply Management (ISM) released two important purchasing manager indexes (PMI) this week. The November PMI fell slightly to 58 for manufacturing companies but remained well above the slow growth line. New orders index jumped to 65.1%, a very good forward-looking sign. The ISM Non-Manufacturing Services Index was also solid at 55.9%, down slightly from October but above 50 for the sixth consecutive month. Wednesday’s ADP Payrolls report was not as cheery. Private non-farm employers added 307,000 jobs in November. That’s a continuation of the slowdown in hiring since late summer. Economists expected a slightly higher figure but the data fits in with the overall trend that appears will be unchanged until evidence that the vaccine rollout is loosening up activity.

One other area of concern with respect to new hiring is the Federal Reserve Bank’s most recent Beige Book responses from employers regarding hiring. Businesses were overwhelmingly reporting improved conditions but a far smaller share were expecting to hire back to pre-pandemic levels once the COVID-19 threat recedes. The most common reply was that businesses have learned to do more with fewer people. Should that sentiment prevail once activity accelerates, the recovery will be slower.

Regional construction activity has picked up, although much of the progress is in anticipation of the pandemic receding in the spring, which means that construction is not likely to return to higher levels until the second quarter. ALCOSAN released its $110 million East Head Works project for bid, due Feb. 17. Permits were issued to Sota Construction for the $5 million Hazelwood Brewing Building renovation and to Mosites Construction for the $2.5 million Brashear Community Center renovation. Oxide Development/Schiff Capital presented its 114-unit, $20 million 32nd & Penn Apartments to the Pittsburgh Planning Commission. Rycon Construction is the CM. The planning commission also reviewed plans for the $2-3 million conversion of the Triangle Building into residential, which Franjo Construction will build. A. Martini & Co. was selected for the $6 million next phase of the Hunter Building restoration in Wilkinsburg. E. E. Austin was the successful bidder on PSU Behrend’s $5.5 million Federal House addition in Erie. Penn State also selected ZGF Architects for its $146 million new Physics Building and Osmond Building Renovation. Mele & Mele & Sons announced it was building a new 38,000 square foot headquarters and shop at the RIDC Duquesne site. ATI announced $85 million in cpaital improvements to its Vandergrift stainless mill.

Construction Costs Are Stabilizing (And Lower)

The Bureau of Labor Statistics put out its monthly report on inflation last week and it had good news for the construction industry. The global demand freeze since March has neutralized most of the supply imbalances

Two years after nonresidential building inflation hovered at 8%, the producer price index (PPI) for nonresidential building jumped 0.2 percentage points to a mere 1.9% year-over-year. That PPI was flat from September to October. Material prices were less volatile across the spectrum, with most of the month-to-month variance between zero and one percent, up or down. The few outliers mostly related to the decline in oil prices or the shift in lumber markets. Moreover, all of the changes greater than one percent were price reductions.

This environment of falling material prices is supportive of the recovery in construction that should gain strength as multiple vaccines become more widely distributed throughout the first half of 2021. Unlike during the 2003-2004 recovery, when spikes in steel and oil prices derailed many projects (remember Children’s Hospital anyone?), the current environment should enable recovery rather than hinder it.

Bidding and proposal activity has picked up in recent weeks but remains slow. Because of the time of year, however, it’s tougher to judge whether or not this is picking up to a more normal pace (which would be slowing to the holidays). Architects and engineers are hiring and reporting more RFPs. Contracting volume in October topped $300 million for new work. That’s about normal for the season. Election results have provided cheer to investors, despite warnings from the right that a change in the White House would chill recovery. The COVID-19 outbreak now underway is going to bring disastrous public health results over the next 60 days, I fear, but the other side of the pandemic is in sight. That seems to be offering optimism about 2021. Extending the bridge to the rollout of vaccines would build a strong foundation under the recovery in 2021, perhaps even assuring that growth booms in the second half of the year. Congress seems unwilling to unite to build that bridge. Recovery doesn’t depend on it but the strength of the recovery in 2021 does.

Civically Inc. and Bridging the Gap LLC selected A. Martini & Co. as general contractor for the $6 million Hunter Building re-use in Wilkinsburg. Wexford Science + Technology reported that its new $100 million life science research building at 5051 Centre Avenue should start next spring. Turner Construction is the CM. Massaro Corp. is budgeting the $51 million Fifth & Dinwiddie project. Mele & Mele & Sons announced that it is building a new 38,000 square foot office and maintenance shop at the RIDC City Center of Duquesne. Goldfish Swim Club is taking bids from A. W. McCay, A. Martini & Co., & Rossman Hensley on its $2 million buildout of the former Community Supermarket space in Fox Chapel Plaza. Mortenson is taking trade package bids Dec. 8 on the $45 million Lasch Building expansion/renovation at Penn State.