After a protracted recession
left construction activity basically dormant, Philadelphia is experiencing a
building boom in which billions of dollars are pouring into new developments.
Building activity — big and
small — crisscrosses the city from the Navy Yard to Center City and from
University City, where health-care and educational institutions have spent
their own billions over the last decade expanding their campuses and facilities,
to North Broad Street.
Philadelphia neighborhoods
are also seeing more construction as smaller developers move dirt on
residential and mixed-use projects.
While the activity points to
a strengthening economy, it’s not completely clear sailing. Work under way and
in the pipeline have some in the industry questioning whether the region has
enough skilled construction labor to support all of it and what effect it will
have on pricing.
A McGraw
Hill study found that near-term shortages of skilled, experienced workers
is a “serious concern” with nearly a third of architectural and engineering
firms worried about not having enough specialty-trade contractors this year.
Nearly half of the general contractors surveyed are worried about the issue.
The Federal Reserve’s most
recent Beige Book of regional economic conditions showed some parts of the
country facing labor shortages in construction and high-skilled trade workers.
That has put “upward pressure on wages, and subcontractors are demanding and
getting higher rates.”
Stealing labor
The Philadelphia Federal
Reserve reported contractors were hesitant to hire workers who required
training and as a result “contractors are ‘stealing’ skilled labor from each
other.”
Despite the data and
projections, area developers, contractors and industry experts believe
Philadelphia is prepared to meet the demand for all of what is in progress.
Some of the projects
developers have announced include a $1.2 billion second skyscraper for Comcast
Corp., a $341 million tower for FMC
Corp.’s new headquarters, Dranoff Properties $200 mixed-use development on
South Broad, a $280 million W Hotel, among others.
There’s also a long list of
projects that have been talked about for years whose time may have finally
come. They include the development of Girard Square, the Gallery, Penn’s
Landing, a new casino, the American Revolution museum and work at Philadelphia
International Airport.
A deep bench of workers
exists that could meet the increase in demand but it may test some specialized
areas of labor, say the experts.
“We hear about all of these
major projects, but they aren’t ready to go and have to have a shovel in the
ground tomorrow,” said Ed
Jorden, a co-founder of Canuso-Jorden Inc., a construction company that was
formed four years ago.
“If things go as advertised,
things are going to get very busy, but I think there’s enough labor. I think
there is still 15 percent unemployment and ample capacity to do the work,”
Jorden said.
Stephen
P. Mullin, president at Econsult
Solutions Inc., said Philadelphia has a “latent supply” of construction
labor.
In other words, when
construction activity was down during the recession, those in the field found
other jobs to keep them busy but are available to return as work ramps back up.
– at least that’s the hope.
Steven
S. Lakin, president of the General Building Contractors Association Inc.,
is also confident there is enough union labor to support the anticipated
increase in construction activity.
“Work was so slow between
2006 and 2013 that there are still a lot of building trades professionals who
are unemployed or underemployed,” Lakin said.
The biggest issue facing the
industry is worker shortage, said Mary
Tebeau, president of the Associated Builders and Contractors of
Southeastern Pennsylvania, whose members operate open shops and mostly stick to
suburban projects, though some do work in Philadelphia.
Lost workers
Since January 2007, the
construction industry nationally has lost 2 million workers who have either
retired or gone into other professions and likely not coming back to the
sector.
The Department of Labor has
listed the construction industry as one of the top five occupations that will
experience shortages over the next couple of years, Tebeau said.
“This is not a
labor-affiliated issue,” she said. “This is whether you’re a signatory or not.”
All of the work that is
expected to eventually get under way could certainly test some skilled areas.
That happened when the condominium market was on fire in the mid-2000s and
concrete was one of the main materials in building those high-rise structures.
As a result, pricing was affected. That same concern has cropped up as those in
the industry take stock of the number of planned projects.
That has also meant being
cautious when it comes to estimating materials and labor costs. During the
economic downturn, contractors saw modest 2 percent to 3 percent increases on
average. That is expected to change.
Michael
Armento, vice president at Torcon
Inc., a construction firm, has started to see that subcontractors, which
make up the lion’s share of its business, are less inclined to reduce their
numbers to win a job as business picks up.
“The discounting isn’t as
great as it used to be,” Armento said.
That situation is expected to
continue.
When projects were scarce
during the recession, contractors, particularly subcontractors, ate into their
mark ups to stay busy, said Jorden, whose company is teaming up with Hill
International to construct Temple
University’s $150 million library. They were charging just enough to cover
costs.
“Eventually, they will look
to make a fair return of 15 percent to cover overhead and profit,” he said.
“You will see materials and labor go up a reasonable amount, but you will see
some spikes and subcontractors being more profitable.”
Lakin at the GBCA estimates
the cost of construction will escalate between 3 percent and 5 percent this
year.
“Pricing is driven by more
than the volume of work,” he said. “The global economy will continue to dictate
the cost of construction, and factors such as interest rates, demand for
materials … and the cost of labor will be the principal drivers of construction
costs.”
This should eventually
translate into wages going up not only for contractors but also for the softer
part of the construction industry such as architecture, engineering, marketing
and designers involved in other parts of the development process.
A construction boom
underscores a bigger trend at work, Mullin of Econsult said. It’s in response
to a city embracing demographic shifts in people, including immigrants, wanting
to live in urban areas. It’s an adjustment in people’s behavior on where they
want to live, relax and shop, he said.
“There’s strength in that,”
said Mullin. “Philadelphia is an attractive place to live and the vibe and
vitality of the city is infectious and generating a ton of infrastructure and
capital investment to the tune of billions of dollars. We are nowhere near the
end of that.”
20
to watch
There are dozens of projects
big and small either in the works or in the pipeline. Here are some of the
largest and their cost of construction.
10 Big Projects Under Way
- 38 Chestnut, 38th and Chestnut streets, $110 million
- New College House on Hill Field, a site bounded by 33rd, 34th, Walnut, and Chestnut streets, $127 million
- Southstar Lofts, 521-31 S. Broad St., $32 million
- 3601 Market St., 36th and Market streets, $110 million
- Church of Jesus Christ of Latter-day Saints temple, 1601 Vine St.,$70 million
- Philadelphia Family Court, 15th and Arch street, $160 million
- Children’s Hospital of Philadelphia Buerger Center, CHOP’s main campus, $425 million
- EVO at Cira Centre South, 2930 Chestnut St., $160 million
- Drexel University mixed-use project, Lancaster Avenue at 34th St.,$160 million
- Wistar Institute, 3601 Spruce St., $100 million
10 Big Future Projects
- Comcast Innovation andTechnology Center, 18th and Arch streets, $1.2 billion
- FMC Tower at Cira South, 30th Street at Walnut Street, $340 million
- 1919 Market St., mixed-use development, $100 million+
- W Hotel, 1441 Chestnut St., $280 million
- SugarHouse Casino Expansion, 1001 N. Delaware Ave., $155 million
- Lincoln Financial Field Expansion, 1 Lincoln Financial Field Way, $125 million
- University of Pennsylvania
- Neural Behavior Sciences Building, Located between the Leidy Labs at 3740 Hamilton Walk and the Carolyn Lynch Labs at 433 S. University Ave.,$78.5 million
- Temple University Library, N. 13th St., $150 million
- Rodin Square, 21st and Hamilton streets, $140 million
Source: Philadelphia
Business Journal
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