CBJ: How will construction weather the downturn in Central Virginia

By McGregor McCance

Published: May 19, 2008

On the national level, economic news continues to disappoint. Housing stumbles along, while prices surge on food and gas.

Private residential construction spending for March saw the biggest drop since such records were first recorded in 1993.

In Central Virginia, permits are down and housing inventories are up significantly compared with to the market’s peak of 2005-06. But commercial projects, marked by the red dirt visible from so many local highways, seems less affected.

The Daily Progress checked in with Chris Lee of Piedmont Virginia Cos., a Charlottesville-based construction firm whose properties include R.E. Lee & Son, for some insight into the situation in our backyard.

Chris Lee
of Piedmont Virginia Cos.

Q. We’ve all read about the housing market and how the slowing economy in general have affected construction of homes and commercial projects. How would you assess the construction industry for
Central Virginia right now?

A. The market for commercial construction projects is still active and there are ample opportunities for more work. There are signs of slowing as more contractors are pursuing each project as they come up for bid. Recent school projects in Albemarle County attracted about six contractors on each project; this is double what the county could have expected a year ago.

Commercial construction tends to lag the general economy as it takes a long time to plan, design, permit and construct a commercial building. I would expect to feel a slowdown in late 2008 and into early 2009. Charlottesville is a special place with the University of Virginia driving much of the local economy. They have around $1 billion of construction in process (planning, design, permitting and construction) at any point in time.

Expansion of Rivanna Station for the federal government and the relocation of Martha Jefferson Hospital will also add a significant amount of work to the construction economy. This amount of work will provide plenty of work for local contractors and will bring in contractors from outside our area.

Q. How is R.E. Lee & Son weathering the situation? Have you adjusted how you do business?

A. Our workload and backlog of work is holding up well. The pipeline of potential work is not as robust as we would like, but this could change quickly with just a few projects.

We try not to change what type of work we pursue and where we operate. We feel that it is more important to provide excellent service to those clients we have than to search for revenue in projects that do not fit our strengths. R.E. Lee & Son has promoted Dan Fagan (a UVa engineer and Darden graduate who has great project management experience) to the role of project development. With a potential slowdown looming, we believe that it is more important than ever to place greater focus on finding clients who we can help.

Q. Are segments of the construction industry still doing well? Which areas locally?

A. The residential construction market seems to have been hit harder than commercial construction. There have been some residential contractors reduce operations and/or move toward commercial work.

Road builders have been hit with poor funding from the state for roads and the high cost of petroleum. Within the segment of commercial construction all trades are seeing the same pressure to compete for business. Commercial construction does not break down by neighborhood and so I do not see any geographic area of the Charlottesville community that is doing better than the others.

Q. How do national economic trends, such as surging gas prices, affect local construction companies?

A. Although Charlottesville weathers economic storms better than most communities, we are not immune to the large economic changes. While the competition between contractors for pricing is quite strong right now, increases in the cost of construction continue to drive pricing up.

Along with increases in petroleum products such as asphalt and PVC piping, there are increases in the cost of cement and steel. For example, the cost of a ton of rebar has increased $250 to $1,100 per ton and we expect more increases soon. Of course, the cost of gas has a direct and immediate impact on the cost of getting manpower and materials to the jobs. Some of our crews have adjusted their schedule to four 10-hour days to eliminate one day’s commute to work.

Q. What’s next for construction in our area?

A. I don’t have a crystal ball. I do expect that the rate of growth of commercial construction will flatten. Most experts think that residential construction will pick up by early 2009.

Commercial construction tends to cycle from one type of construction to another. We’ve been in a boom of condominiums and it is reasonable to think that this cycle is over. Although with an aging population and a great quality of life in Charlottesville there may be a market for more condominiums in town.

We’ve seen quite a bit of retail built recently and there is probably a market for more. We have not seen a lot of office building and this may be the next big thing. Martha Jefferson Hospital’s move to Pantops will likely cause an increase in medical offices in that area. Expansion of Rivanna Station will draw more businesses to Route 29 North to serve the Department of Defense and its large workforce.