Regional Roundup

Optimism Prevails Around the State

By D.Ann Slayton Shiffler

Most economists and construction-industry prognosticators are using the word "optimistic" to describe their outlook for 2005. The general consensus is that 2005 will likely be better than 2004, which was not a banner year, but was still steady and relatively strong.

Economic prosperity is expected for the Lone Star State through 2009, according to Ray Perryman, principal of Waco-based The Perryman Group. With forces in place designed to enable substantial expansion, Perryman predicts that Texas will outpace the nation in terms of gross domestic product and job growth over the next several years.

"The health of the Texas economy continues to improve at a modest pace," Perryman said. "Employment growth has been steady across most industries. Although high tech is still weaker than in years past, activity is increasing and orders are extremely robust. The housing market has been a solid contributor to our economic strength."

He added that in many sectors, optimism is high that the pace of hiring will pick up in the near future, and that the current momentum will steadily move forward.

Over the next year, The Perryman Group forecasts that the value of construction contracts in Texas will increase about 7 percent over 2004, which increased 6.3 percent in 2004 over the previous year. The firm projects that the construction sector will gain approximately 12,000 workers, with a projected 592,100 working in the industry in 2005, a 2.1 percent increase over 2004.

Such positive data back up the observations of those in the field. Last year, construction industry professionals used the term "cautious optimism" when discussing their outlook for 2004. This year, Raleigh Roussell, president and CEO of the QUOIN chapter of the Associated General Contractors (representing Dallas, Fort Worth and East Texas), said he is apt to drop the word "cautious."

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"We are very optimistic about the coming year. We think most market segments are going to look good."

The only sector Roussell thinks may remain flat is the speculative office building market.

"But retail, health care and the public market will be good," he said.

Roussell points to several public projects on the drawing board in his region including projects initiated by the Dallas Community College District and the Dallas/Fort Worth International Airport.

"Architects in our region are busy, which is a good sign. I think everyone has a pretty optimistic tone."

He added that prospects for building in the less metropolitan areas of East Texas are also good.

"There's been a lot of education building and more to come," he said. "The number of high schools that have been built or are being built is incredible. This has been a tremendous market for our industry and provided much-needed work as private-sector building has turned down."

The only hitch on the horizon would be if there is a change in the way schools are funded, Roussell said he doesn't think the private-sector markets will increase substantially until the high-tech industry recovers and speculative space fills up substantially.

In West Texas, public work will continue to dominate, according to Joe Gomez, executive vice president of the El Paso branch of the AGC.

"The construction outlook in 2005 is excellent and it will be much better than 2004," he said.

Gomez cited several projects that will start up in 2005, including $250 million in bond money from the Ysleta ISD, $207 million in bond money from the El Paso ISD and $188.7 million in bond money from the Socorro ISD.

"We are also looking at Texas Tech University projects for 2005 and additional projects at the University of Texas at El Paso," he added.

In Houston, Jerry Nevlud, executive vice president of the AGC of Houston, said that 2005 appears to be shaping up as a "good year, but nothing above and beyond."

"We're looking for next year not to be really an exception, but it's not going to be a bad year," he said. "We think 2005 will be a lot like 2004 with school and medical work dominating our marketplace."

For Central and South Texas 2005 will likely bode well, according to Doug McMurry, executive vice president of the San Antonio AGC.

"We think 2005 will be good or better than 2004," he said. "We expect there to be a lot of work in the public sector and in particular schools, county and city work. Additionally we are hopeful that the Alamo Community College bond campaign will be successful and if that's the case that will mean another $450 million in the marketplace."

McMurry expects the new Toyota manufacturing facility in San Antonio to continue to stimulate construction growth.

"On the private side, there will be a lot that goes on related to Toyota and its suppliers."

San Antonio can also rely on its tourism industry in 2005, with the hospitality industry expected to start several significant new projects, he said.

"Overall, we think Texas is a good place to be in the construction industry in 2005," he said.

Economic health in virtually every geographic sector in the state will promote construction industry performance in 2005, said Jim Sewell, executive vice president of the AGC Texas Building Branch chapter in Austin.

"Every area of the state will at least hold its own, with certain areas of the state definitely seeing increases," he said. "There are several big projects in West Texas, and we see continued growth in the major markets such as Houston and Dallas."

He agreed that educational jobs have been a real growth industry.

Sewell added that retail building will continue to be robust, especially in the Interstate 35 corridor from San Antonio to north of Austin. Medical building will also be strong, he said, with several hospitals on the drawing board in Texas.

Austin will continue to see robust construction in the retail sector as well as education and health care.

"We're seeing some base improvement at military facilities including Fort Hood," he said. "There are major construction dollars, and my thinking is we are also looking at new prison construction."

With the outlook for the construction industry strong, equipment manufacturers and dealers expect to do better in 2005 than 2004.

"We are optimistic," said Scott Ralston, director of the sales effort for Georgetown-based boom-truck manufacturer Manitex. "It appears that there was a somewhat cautious build up of rental fleets in 2004. That will expand at a greater pace in 2005. I would not be surprised if our industry experiences growth as high as 10 percent."

One factor that could hinder the construction equipment industry is supply-chain issues, Ralston said.

"Those manufacturers who have utilized 2004 to reestablish internal procedures and a supply chain geared toward growth will benefit most from seemingly universal optimism."