By D.Ann Slayton Shiffler

The outlook for the construction industry in the coming year is positive, with economists and industry leaders upbeat about the prospects for a stable year.

The common sentiment seems to be cautious optimism, even with recent positive economic news and developments. Among those are the announcement by Toyota Corp. to locate an $800 million truck-manufacturing plant in San Antonio and the creation of regional mobility authorities to expedite the construction of toll roads (primarily in Central Texas, but eventually throughout the state).

"Texas is closer to reaccelerating than we had realized a few months ago," said Ralph Gentile, an economist for McGraw-Hill Publications. "The only thing that may pull things down is housing, which has to come down at some point. Health care and hospitals were really high in 2003."

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Gentile's forecast for Texas is fairly conservative, with projections for a flat-if not slightly up-year. Preliminary numbers for 2003 show that about $43.5 billion in construction contracts were awarded last year, up 3 percent. Gentile forecasts a 1 percent gain for 2004. Based on preliminary year-end figures, he said that the construction sector in Texas ended the year up, "which was a surprise."

"The year 2003 was the first in a long time in which Texas lost employment," he said.
"But the underlying story is very positive."

The sectors expected to see the strongest performance in 2004 will be electric utilities, commercial buildings and manufacturing facilities, Gentile said.

Last year in Texas contractors began work on approximately $6 billion worth of commercial and apartment projects-including stores, restaurants, warehouses, office buildings, and hotels-down from about $7.4 billion in 2002.

McGraw-Hill forecasts $6.84 billion in commercial contracts in 2004, a 14 percent increase. The company expects every area in the commercial and manufacturing category to do better than it did the year before, with substantial increases in contracts for manufacturing facilities (including the Toyota plant), warehouses and hotels.

McGraw-Hill also forecasts that institutional construction contracts may fall slightly in 2004, to about $7.4 billion, a 4 percent decrease. This category includes schools, churches, government buildings and hospitals. Last year preliminary figures show that approximately $7.67 billion in contracts was let in this sector.

"A lot of schools and dormitories were built in Texas during the past two years," Gentile said. "When you get strong gains for a year or two, you can expect things to back off."

He added that construction on college campuses should continue its current upswing.
"We're not sure how long the rapid growth at the university level will last, but demographics suggest education will remain strong," he said. "The institutional category has doubled-even tripled-over the past decade or two, including prisons, public buildings, religious buildings and the like."

For the past few years, with interest rates luring more people to buy homes, housing starts have set records across the nation. Most economists do not expect this trend to continue.

In Texas last year close to 142,500 new single-family homes were started, 10,000 more than the previous year. McGraw-Hill predicts a 4 percent decrease in that figure for 2004, estimating some 137,000 new homes will be started. For the entire housing category, which includes duplexes and apartment construction, economists are predicting a flat year, with a slight decrease in new starts.

"In terms of single-family housing, we think 2004 in Texas will mirror 2003," Gentile said. "We're forecasting a little over $20 billion in single-family home contracts."

A bright spot for Central Texas in 2004 is the public-works category, which includes highway, street and bridge construction as well as power plants and water supply systems. While McGraw-Hill predicts a 6 percent decrease after last year's 15 percent gain in overall contracts awarded, Central Texas will benefit greatly from several new TxDOT projects.

"The new corridors program should help transportation solidify its infrastructure advantage," Gentile said.

"There are roads going in all around Austin," said Bill Powell, a TxDOT spokesman.
"With Texas Highway 45 under way, Texas Highway 130 started and two other toll roads starting in the Austin area, there should be a lot of work in Central Texas."

TxDOT spokesman Chris Bishop expects Central Texas to be a leader in transportation construction for the next few years because the region's infrastructure needs to catch up with the boom of the mid-90s.

"Texas Highway130 and Texas Highway 45 toll roads are very big projects," said Bishop. "There will be construction on them for the next four years.

While Austin continues to reel from the high-tech bust, city leaders are working hard to stimulate economic development and diversify the Capital City's economy.

Clif Davis, principal of the Carter & Burgess Austin office and board member of the Austin Chamber of Commerce, is optimistic that the Austin economy will rebound by 2005. He said that city business leaders are concentrating on diversifying the local economy and solving transportation problems by building toll roads.

"Austin is a city with a wonderful quality of life," Davis said. "We lost a lot of jobs in the high-tech sector, and that hurt our economy substantially. But we have a lot of good things happening, and all of the new road-building projects should help with some of our infrastructure issues."

For the most part, the folks in the trenches are looking to 2004 as a solid year for business.

"As far as the Houston area is concerned, we think the marketplace in 2004 will be similar to 2003," said Pat Kiley, executive vice president of the Associated General Contractors of Houston. "It might be down slightly, but not much. School construction will thrive as will institutional construction. The Texas Medical Center will remain a good market."

Kiley said that office building and commercial construction will remain flat because Houston is still doing some "sorting out" in that area.

"The question is the use of the Enron building," he added. "We had three other properties come online downtown within the past two years and they are doing well, but the Enron space is still a big issue."

He said his organization expects retail, churches and light industry to be much the same as last year.

"The good news is that architecture firms have slowed down layoffs," he said. "And some are actually starting to hire. What it will be like from a contractor's point of view depends on how fast projects can be designed and out in the market."

Manhattan Construction, based in Houston, had a solid year in 2003 and expects this year to be somewhat better.

"We are cautiously optimistic," said Leonard Rejcek, president of Manhattan's Southwestern United States division. "I think the challenge in this market is that the owners are far more conservative than they used to be, and jobs are taking longer to develop.

"Typically you would start working and develop as you go. But now it's taking up to a year or more before construction begins. We don't start recognizing the revenue until the construction starts."

Rejcek's company predicts that several new contracts will start by midyear.

Manhattan Construction does a lot of health care and institutional work, and Rejcek expects these will be good areas for the company in 2004.

"There's still a lot of steady work at the Texas Medical Center," he added.

Rejcek expects new construction at the George Bush International Airport and the William P. Hobby Airport to come online in 2004.

While there are several education projects on the drawing boards in the Houston area, Rejcek said an influx of out-of-state contractors now in the Texas market makes projects competitive.

"There are a lot of traveling guys chasing this work," he said. "But I think that the education portion will level off. It's a market that has been oversaturated with competition."

The company does a fair amount of work in the Dallas area, too, and Rejcek said that Houston may lead Dallas in construction contracts in 2004.

"Dallas is still very tight," he added. "The city had a lot of speculative building in terms of office spaces, and that market all but disappeared. Houston still has a good market for construction, but Dallas would be secondary."

While commercial construction may be flat in Dallas in 2004, transportation construction continues to lead the pace. The $260 million High Five project is about 43 percent complete, according to Mark Ball, a TxDOT spokesman for the Dallas area.
The project involves the construction of a five-level interchange, the first for Dallas.

Rejcek anticipates that new light rail contracts in Houston, Dallas and eventually Austin should stimulate construction in the coming decade.

Economist Ray Perryman, president and CEO of the Waco-based Perryman Group, expects the construction industry to do well in 2004, forecasting a 2.8 percent increase in real gross product in the construction sector and 1.5 percent growth in wage and salary employment.

Perryman agrees with Gentile that building permits for single-family housing will decline slightly in 2004, with about a 3.2 percent drop, or approximately 5,000 fewer homes in 2004 started as compared to 2003.

"The economy of the state is continually seeing modest improvement with productivity steadily increasing," he said. "There is general evidence that small business activity is gaining strength and we're starting to see some hiring. Manufacturing is also rising from the doldrums it has suffered over the past couple of years. We expect construction hiring to rise in many parts of the state, with San Antonio and the border region being among the strongest."

Doug McMurry, executive vice president of the San Antonio AGC, said his organization is optimistic about 2004 in the Alamo City.

"We think San Antonio will continue to do well in terms of public-school construction and hospitality, and we think there are opportunities with regard to health care," he added.

McMurry said that San Antonio's tourism industry continues to perform well with the massive PGA Village hotel and golf resort project, which is expected to tee off in 2004.

"I think we will start to see things break loose next year," he said. "The Toyota plant will be significant to our local economy."

Things are also looking up out west. Gary Olmstead, executive director of the AGC of El Paso, said his region has been flat for almost two years.

"The past 18 to 24 months have been tough here," he said. "But we do think it will get better."

The El Paso Independent School District recently passed a $207 million bond election. Projects in that package should go online by midyear. And the Socorro and Yslet independent school districts are planning to present large bond packages to the community in 2004.

"Institutional work in general should be good for us," Olmstead said. "The University of Texas at El Paso, currently has some significant projects. We are also starting to see some movement in the private sector. In all areas we are projecting a good year."

Olmstead said many of the contractors he has talked with had hoped to see more project starts in the fourth quarter of 2003, but that didn't happen.

"It makes you a bit more cautious when thinking about 2004," he said. "Things are just taking longer to develop."

Still, Gentile sees the state as heading in a positive direction.

"A lot of good things are happening in Texas, and it will well outpace the national economy," he added. "Texas will post numbers substantially above the national average and appears to be one of the few states that experienced actual growth in manufacturing employment during the past decade."