Construction Analysis: Trends and Growth in Maryland and Nationwide

Construction sectors where growth is predicted for 2018 include commercial and single-family residential, especially with so much post-hurricane rebuilding to come.

As a third-generation family owned business with extensive experience in nearly all facets of construction, Clark Contractors, Inc. regularly reviews construction trends across industries, particularly in our main service states of Pennsylvania and Maryland.

National Industrial Construction Trends

Growth Everywhere but Infrastructure

Indicators are positive across the overall construction industry, with a record-setting month in October of $1.24 trillion in spending, according to the Associated General Contractors of America. The organization also says construction spending is on the rise in all but public infrastructures such as water-treatment plants, roads, bridges and sewage-processing systems.

However Spending on public infrastructure had shrunk by 3.4 percent in the first 10 months of 2017. Some sectors felt bigger shares of the collective pain than others due to decreases over 2016:

Sewage processing and disposal spending decreased by 15.6 percent.
Water-supply construction spending came down by 9.6 percent.
Highway and road spending fell by 4.3 percent.
Transit spending on ports, rail and airports slipped 1.6 percent.

Across the nation, commercial construction booms with spending growth of about 15 percent, due in large part to warehouse development and redevelopment. Old, large, vacant buildings and open land become new spaces, with design sometimes predetermined by the developer, but more often left open as an option to new tenants.

The warehouse-development trend transforms unused space into functional places needed today. The uses might vary, from manufacturers and technology companies to big warehouses and mixed-retail destinations. The uses could be bustling business or residential tranquility.

Senior Housing Construction Retains Strong Outlook

Growth of the population over 65 will continue, driving demand for senior housing construction for communities and residences.

Demand for senior-citizen housing has grown by leaps and bounds as the baby boomer generation ages and reaches retirement.

Growth of the population over 65 will continue for some time, and that has driven demand for senior-housing construction projects.

Data from National Investment Center for Seniors Housing Care say one quarter of 2017 showed a slight downtick in the absorption rate of the housing to occupancy, while other quarters showed growth.

Green Movement Grows

All leading General Contractors know the term ‘green building’ by now, and realize clients, whether commercial or residential, are motivated by innovations in energy efficiency. Our clients want to save money on their investment in industrial, commercial and residential construction projects, while doing the right thing by the environment. The green movement provides awareness, resources and standards that support green building initiatives in Maryland and across the nation.

Owners and managers have learned they save money through the sustainability of green projects and score higher with prospective tenants because of it. Schools, community centers, institutional buildings, private businesses and homes continue to go green in new and creative ways, not just in the American construction market, but all over the world.

More education, deeper research and higher awareness drive green building, which has many layers of meaning. The term itself might be used when someone installs energy-efficient windows or replaces incandescent light with LED technology. Other avenues are more formal, like certification by the U.S. Green Building Council through its Leadership in Energy and Environmental Design program, for example. A building project can incorporate many kinds of green technology to achieve points and earn silver, gold or platinum certification levels.

Industrial Construction Trends in Maryland

Industrial construction in Maryland continues to undergo a surge, with demand up and vacancy down on, for example, redeveloped warehouses and other industrial buildings that can be finished to suit.

Part of the demand results from business growth, as well as online retailers that seek large spaces to serve as an order-fulfillment center, for example. Others could be data centers, server farms or other large uses.

Continued growth is evident in Maryland and throughout the region during the past few years. The first glimpse of recovery after the recession came in the form a small spike in commercial construction from 2012 to 2014, with a dip in 2015.

From 2015 to 2016, however, Maryland’s commercial construction activity grew by 69 percent. It’s an indicator of good growth that the Metropolitan Washington Council of Governments’ (COG) region gained 12 million square feet of new commercial space in 2016, manifested in 160 new buildings.

COG looked at 2016 commercial construction numbers and found whopping growth in Maryland and solid growth elsewhere in the region:

Suburban Maryland’s amount of commercial construction increased 157 percent from the previous year with the addition of 4.4 million square feet.
The District of Columbia’s new commercial construction increased 63 percent from 2015 to 2016, with 2.3 million added square feet.
Northern Virginia had a 37 percent increase in commercial construction over the previous year, with the addition of 5.7 million square feet.

Growth by project type within the COG’s research area of D.C., Maryland and Northern Virginia breaks down this way:

Industrial had 33 percent of the new construction, with 4.1 million square feet in 36 buildings.
Office took 20 percent of the new construction, with 2.5 million square feet in 28 buildings.
Hospitality was 19 percent of the new construction, with 2.3 million square feet in 10 buildings.
Retail had 13 percent of the new construction, with 1.6 million square feet in 70 buildings.
Health care claimed 8 percent of the new construction, with one million square feet in five buildings.

It’s worth mentioning in Maryland that the biggest single project completed in 2016 was the massive, 24-story MGM National Harbor Hotel Casino in Prince George’s County. Now open, it has a square footage of 945,288 square feet.

Maryland currently ranks seventh nationally for its quantity of green buildings per capita and LEED-Certified buildings according to the Maryland Department of Commerce.

There are many other signs of green-building trends in Maryland:

It gave $81 million in grants, rebates and loans related to alternative energy.
The state has committed to reducing greenhouse gases by 40 percent before 2030.
Maryland’s goal is to derive 20 percent of its energy from renewable sources by 2020.
The 1,260 businesses related to energy and sustainability in the state generate about $8 billion in gross product.
Maryland ranks 12th in the United States for the number of solar-industry jobs per capita, with a reported 5,429 people employed in the industry.

Major Industrial Construction Projects in Maryland

As early as 2014, soda maker Coca-Cola announced plans to build and move into a new 291,000-square-foot facility in Hanover, and bleach maker Clorox constructed a 945,000-square-footcomplex in Harford County.

The Federal Hill area in Baltimore is about to undergo a $7.2 million redevelopment to include an existing restaurant, a new restaurant, a wine bar and a coffee roaster and shop. The city had been exerting efforts to upgrade the area.

In Bethesda, across from the Montgomery Mall, a developer recently gained approval for construction of a 340-unit, 12-story apartment building on a site that used to be a car dealership. The first site plan included retail within the development, and the new one does not.

The building is planned to be 355,822 square feet. It originally had about 54,000 square feet of retail included within it. Developers reported that the retail was hard to market, partially because it did not face the street and existed within an area already heavy with retail business.

In a historic neighborhood of Mt. Vernon, a city commission on historic preservation voted to allow demolition of several historic buildings to make way for a $30 million retail and residential hub.

The developer had not finalized the plans, but anticipated 100 residential units, underground parking, a 15,000-square-foot grocery store and other tenants in a building that could be eight stories tall. The development will replace an aged, but beloved, neighborhood with 1800s-era buildings. The plans include restoration of three historic properties within the area.

Top Industries for Construction in Maryland

Modular, prefab and offsite construction are not new, but are growing due to technological developments that increase its appeal. It accomplishes two important goals: finishing on time and staying within budget. Experts predict that while some techniques are slow to take off, they eventually do if they’re sound.

A growing niche within modular is the offsite assembly of heating, ventilation and air-conditioning systems. It enables those contractors to spend fewer hours on the site, while simultaneously improving efficiency and increasing subassemblies.

Contractors who build public infrastructure are eager to hear details of President Trump’s generically referenced plan to infuse that market with $1 trillion. Some consider his words a strong market indicator that public-infrastructure construction will get a boost.

However, there are few details available about how the infusion would work, which sectors would benefit from it and if it would impact other construction industries negatively. Another factor that makes public infrastructure possibly ripe for growth is complaints about neglect.

The Continued Popularity of Sustainable Construction

Sustainable building continues to be popular, and isn’t likely to stop even in the face of possible cuts to or elimination of the Environmental Protection Agency, which has been the parent of the program since its inception.

If the EPA went away, the green-energy programs and incentives could be moved under the umbrellas of the U.S. Department of Energy. There will be a shift to highlighting how green construction benefits clients and the bottom line.

Warehouse construction and redevelopment top the list of busy construction projects in several places. Not as many big factory buildings are necessary as in the past, but repurposing their former buildings can fulfill today’s needs for entrepreneurial makers, online-order fulfillment centers, server farms, office and meeting space, artistic lofts and residential apartments.

Indicators and predictions for 2018 include steady increases in all sectors of non-residential construction. The biggest growth of 4.8 percent is in education, with 4.6 percent in retail and other commercial. Office, health, public safety and amusement and recreation are also slated for growth of more than 3 percent.

Top Construction Sectors for 2018 in Maryland

Stark Labor Shortages Illuminate Rising Demand

The urgency of a construction sector’s labor shortage provides a good indicator of what areas are surging and which may be flat or stagnant. The Commercial Construction Index report showed concrete construction at the top of the list for the second and third quarters of 2017.

Three entities collaborated for the report: the U.S. Chamber of Commerce, USG Corporation and Dodge Data & Analytics. They began to generate the reports quarterly in 2017. Among other things, the research involves contractor surveys.

Other construction trades besides concrete showed up in the top five for labor shortages in more than one quarter:

Electrical
Masonry
Interior finishes
Millwork
Steel erection

The report examines those same labor-shortage trends in different regions. The Northeast stands out among the regions when it comes to the percentage of contractors who report having trouble finding skilled laborers:

Northeast: 41 percent
Midwest: 68 percent
West: 67 percent
South: 66 percent

During the most recent quarter, the West showed the most increase in backlog by a considerable amount:

West: 52 percent
Northeast: 34 percent
South: 30 percent
Midwest: 27 percent

Home builders gauge growth in residential construction, and one indicator is how many building permits states issue. U.S. Census information shows the percent of change from 2015 to 2016, and the patterns are interesting. Hawaii, New York, New Jersey, North Dakota and Vermont experienced negative percent-of-change numbers somewhere between -55 and -10.

Maryland, at -0.1, was among the group that experienced a change between -10 and 0. Other states in that group included Connecticut, Nebraska, Montana, Rhode Island, Texas, Washington, D.C., West Virginia and Wyoming.

The majority of states — including Virginia, at 9.4 percent growth — fell into the category of growth between 0.01 and 10.

The states showing growth between 10 and 20 percent in residential building permits are Alaska, Arkansas, Georgia, Illinois, Iowa, Kansas, Michigan, North Carolina, Ohio, Oregon, Tennessee and Wisconsin.

The surge of construction out west is reflected in the states that had high growth in residential building permits: Arizona, Colorado, Idaho, Nevada, South Dakota and Utah, as well as Kentucky.

Overall Construction Trends by Sector

Overall, construction has grown in most places by double digits from 2012 to 2015, and then showed a more modest 5 percent in 2016. Economists generally predict activity will level off and continue growing, but at a slower, more measured pace.

Construction sectors where growth is predicted for 2018 include commercial and single-family residential, especially with so much post-hurricane rebuilding to come. Office construction is projected to grow, while multi-family housing is expected to shrink.

Construction of institutional buildings, manufacturing plants and public infrastructure is expected to increase over the next year. Experts predict utilities such as electric and gas will see a 13 percentdecrease in construction projects.

Legislation Trends on Zoning and Safety

The trend is always toward more and better safety, and about half of U.S. states have occupational safety and health departments. Maryland has Maryland Occupational Safety and Health (MOSH), which has a compliance arm that enforces current safety laws. Workers and owners all want better onsite safety because it prevents accidents, injuries and death, but every business owner and even worker has a different perspective on safety.

The question sometimes becomes: How much is too much or too far? Construction contractors want to be safe, but they have to be practical and productive, too. The Associated General Contractors of America (AGC) supports common-sense Occupational Safety and Health Administration reform that promotes healthy, safe workplaces while protecting small businesses.

It wants to prevent injury and death with education and training and a cooperative approach working with employees. At the same time, it calls for efficient, effective safety regulations and increased enforcement on repeat offenders. AGC does not support “excessive or unnecessary legislation…” and encourages OSHA to carefully weigh the benefits realized against the efforts exerted toward improved safety.

MOSH is driven by an advisory board that develops and proposes the construction safety rules and regulations. Its mission is to prevent accidents and occupational diseases at all places of employment in Maryland. The construction industry naturally has more safety concerns than most occupations.

New York Passes Construction Safety Bill for Projects in the City

The New York Committee for Occupational Safety and Health (NYCOSH) praised the city council and mayor for passing a construction-safety bill. The organization said the bill hit home for many of the workers who have lost colleagues and friends to preventable deaths. At least 30 construction workers were killed in the city within two years.

Consideration of the bill grabbed headlines in 2017. It included a number of measures to increase worker safety, which are summarized only briefly here:

Crane-operator age limits
Crane equipment to measure wind speeds
Cranes equipped with GPS and data logging
Required safety measures for cranes on windy days
Requirement for lift directors to be present during crane operation
Requirement of a special license for complex crane operators
Stiffer fines and penalties for safety violations, especially where death occurs or there is a history of violations
Site-specific orientation for all workers
Task-specific instructions for dealing with any hazardous material
Minimum wage requirement on city-specific jobs
Safety netting and guardrails over open holes
Safety plans required for any building taller than four stories
Required apprenticeship training

Most contractors know the safety rules and realize all the risks that lead to their creation. However, the policy, practices and standards within each construction industry and their respective businesses are as different and varied as snowflakes.

Many times, attention to safety regulations on a job site can make a big difference in how both clients and employees perceive the company. And, as we all know, safety can make the difference between success and failure because it prevents accidents, injuries and liability situations.

Quality Construction Endures

Clark Contractors is an industrial construction company serving Maryland and central and western Pennsylvania. We put to work 51 years of experience on a range of building and construction-management projects, including commercial buildings, industrial facilities and institutional projects.

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