After some sparse years, retail contractors are rebuilding their bases of clients and staff, thanks to a renovation push in the industry, steady increases in leasing, and stand-alone store and “green” construction. U.S. retail construction spending is set to grow from $46.2 billion this year to about $53 billion next year, with much of that attributable to store remodeling, according to Reed Construction Data.
The year began on a high note, with retail construction spending some 9 percent higher in January than a year before, the Associated General Contractors of America reports. “The pickup reflects tenant improvements, as the surviving chains move into spaces vacated by defunct or shrinking competitors,” said Kenneth Simonson, chief economist for Associated General Contractors. “It’s not new construction for the most part.”
Construction industry unemployment, however, is still far higher than the general jobless rate nationally. It is improving, though, having declined from a staggering 27.1 percent in February 2010 to 17.1 percent this past February, according to Simonson. A construction outlook survey by Associated General Contractors found that 32 percent of commercial contracting firms plan to hire this year, versus only 9 percent that are planning layoffs. In last year’s survey 34 percent said they were planning to hire, but 37 percent were planning layoffs.
Some of the busiest retail contractors now are those with a background in high-performance and sustainable-construction practices, says construction consultant Brian Hill, of San Diego. Enactment of the CALGreen building code in California last year, which set state mandates for energy and water use and treatment of construction waste, forces the issue, Hill says. Retail contractors and design professionals still face challenges though, says Hill. Some are approaching previous clients and offering to perform feasibility studies and cost-benefit analyses to upgrade existing spaces, he says. “Some have seen steady work in health care, which seems to be in an interminable cycle of tenant improvements, and in affordable housing, which was needed after the housing crash,” he said.
Construction starts for shopping centers and stores are flat now, and the projections are for a year-on-year rise of just 0.1 percent, to 12,600 this year, according to Associated General Contractors. Most of the shopping centers in the planning and schematic stages are ones that were in practically the same stage before the downturn, says Jay Dorsey, president of Pearland, Texas–based Triad Retail Construction. “A new shopping center is a rarity, but there are several that are being scheduled for light to medium internal renovations,” Dorsey said.
Meanwhile, rising materials prices are putting pressure on thin contractor margins. In February alone the cost of paint and other coatings spiked 10.5 percent, while copper and brass fittings jumped 5.9 percent, and wallboard rose 5.1 percent — after rising 5.9 percent in January. Contractors’ bids, on the other hand, remained flat, suggesting that the firms must be swallowing most of those increases.