Plumbing and Mechanical

Military realignment will affect all construction; home builders, architects are upbeat<br>May 16, 2005

May 16, 2005
Secretary of Defense Donald Rumsfeld issued his recommendations on Friday for closing, expanding, or realigning hundreds of military facilities in every state and the District of Columbia (complete list and other links are at www.defenselink.mil/brac). The list will be vetted by the 2005 Base Realignment and Closure Commission, which can pare, but not expand, the list before it goes to President Bush by September 8. He must approve or reject it unchanged by September 23, after which Congress has 45 “legislative days” to reject the entire list or it becomes binding. Rumsfeld called for closing 33 “major bases,” defined as installations that would cost $100 million or more to replace, in 22 states. In addition, many workers would move out of leased space that the Department of Defense (DoD) deems insufficiently secure. An estimated 218,000 military and civilian DoD employees would lose their current posts, while 189,000, plus 3,000 contractors, would be added elsewhere. There would be multiple implications for construction. Facilities to which workers and functions are relocating would need new construction on-base and would attract nearby housing, retail, services, and contractors' offices. Abandoned facilities would depress rental and construction markets in the surrounding area. The resulting loss of property and sales tax revenue, and perhaps population, could cause local governments to cancel or postpone public construction. In some cases, cities might benefit from replacing a military facility with higher-value civilian uses. But an article in Sunday's New York Times, citing a report last January by the Government Accountability Office, notes that DoD can take many years to turn over some abandoned property.

Home builders' confidence rebounded in April from a small dip in March, according to survey data released today by the National Assn. of Home Builders. The overall index rose to 70 out of a possible 100 from 67, on a scale in which any number over 50 indicates that more builders view sales conditions as good than poor. The index is assembled from three sub-indexes, of which the component gauging current single-family sales rose from 73 to 76, while the components gauging sales expectations for the next six months and traffic of prospective buyers were 77 and 53, respectively.

“The upsurge in design activity that began around the beginning of the year continued in April,” American Institute of Architects Chief Economist Kermit Baker reported Friday in monthly “Work on the Boards” survey. “Almost 29% of firms reported increased billings in April, while only 9% reported declines. Firms in all regions of the country-and of all building type specializations-report improving conditions.”

“Planned construction has built up noticeably in every major property type except warehouses in recent months, according to a report by Property & Portfolio Research Inc. (PPR) of Boston cited in Wednesday's Wall Street Journal. “In comparing six-month periods, PPR found planned construction rental apartments increased the most, rising 49% from November to April from the previous six months. Planned construction of retail spaces such as malls and shopping centers rose 23%....Planned office construction rose 12%. [Planned] warehouse construction [fell 17%]. Apartment markets that have the highest amount of space entering the planning phase over the past six months include the Washington, D.C., area [and Charlotte]. The office markets identified as most at risk [of overbuilding] include Nashville [and Sacramento]. Palm Beach County, Florida, is considered at risk for too much construction of office and apartment product. California's Inland Empire ranked high on the risk list for the amount of planned apartment, retail, and warehouse” building.

Retail and food-services sales picked up in April, the Census Bureau reported on Thursday. Sales rose 1.4%, seasonally adjusted, after a 0.4% gain in March. Sales in February-April 2005 were 7.5% higher than in the same months of 2004. The largest gains were recorded by gasoline stations, up 18.4%, and nonstore retailers, such as mail-order and Internet sellers, up 12.5%. Laggards included department stores (excluding leased departments), up 0.3%, and sporting goods, hobby, book & music stores, up 1.6%.

The combined value of manufacturing, wholesale, and retail sales rose 0.7%, seasonally adjusted, in March, following a 0.5% decline in February, Census reported on Friday. All three sectors had sales 6-7% higher than in March 2004. The inventory-sales ratio, which fell from 1.42 in early 2003 to 1.30 in early 2004, has barely budged since then and stood at 1.31 at the end of March. These data, along with the April retail sales report noted above, suggest continued expansion of retail construction, other than department stores, and an improved market for distribution facilities compared to 2001-2004.

Value added by construction in 2004 totaled $541 billion, or 4.6% of gross domestic product, the Bureau of Economic Analysis reported on April 20. Value added equals compensation plus profit-type income. The Census Bureau reported on April 1 that the value of construction put in place in 2004 totaled $1 trillion. The difference, $459 billion, reflects purchases of goods and services from other industries.