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11 Feb, 2011

Emerging Trends in Construction

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L11_sm.jpgTalk around the water cooler and at industry events seems a bit more optimistic as compared to a year ago. Many leading architecture, planning and engineering firms are taking projects out of the drawer, pursuing new ones and, in some cases, hiring. This change portends well for construction companies long-term, especially those that have diversified their practices to take advantage of new opportunities in growing markets.

“I’m cautiously optimistic about going into 2011,” said Bob Fox, principal of FOX Architects. “We have a number of projects positioned to move forward after the New Year.”

KTA Group, an engineering firm, sees their market expanding in mission critical, commercial and medical office tenant work within the Washington, D.C. region. “We’re very optimistic,” says Mark Koblos, CEO of KTA Group. “Our company definitely has seen an uptick over the past year and anticipates it going forward.”

Brett Hitt, co-president of HITT Contracting Inc. agrees. “Our backlog going into this year is significantly greater than it was 12 months ago. The fact that we’re organized around eight market sectors helped us tremendously.”

Corporate Commercial

Although the plethora of speculative office buildings and easy financings are behind us, the office tenant market is slowly coming back. Steve Fuller, Ph.D., director of George Mason University’s Center for Regional Analysis, indicated at a recent industry event that Northern Virginia will be at the epicenter of economic growth over the next 20 yeAars. Citing research he conducted that was sponsored by the 2030 Group, Dr. Fuller projected a net increase of 1.6 million new jobs coming to the Washington region between 2010 and 2030. According to Fuller, the demand for housing and office space to accommodate this projected growth will support as much as 70 million square feet of new construction by 2030.

Post recession, companies are exploring new ways of improving their bottom line, quality of space and employees’ work life. In light of this, sustainability has become increasingly important. According to Steve Richbourg, head of HITT Contracting’s Interiors sector, sustainable projects have become more commonplace and the costs associated with attaining LEED CI (Commercial Interiors) or LEED Silver are nominal.

With the advent of LEED 3.0, achieving energy savings has taken a front seat at the table of many project discussions. “In the mission critical world, conserving energy has always been important; but it’s increasingly prevalent in all project types that we design,” says Koblos.

Another trend in corporate spaces is the growing number and importance of collaborative spaces. Lunch rooms, lounge areas and cafes are now being located in high circulation areas as opposed to on the periphery. Group computing spaces are also becoming more popular.

In addition to tenant work and the occasional build-to-suit, one developer speculated that retrofitting office building obsolescence will become a bigger part of that market’s recovery. He pointed to the glut of office buildings that came online in the 1980s, particularly in the suburban Dulles Toll Road area. Those structures will need a complete overhaul to meet more stringent energy codes, not to mention new public spaces, stairwells and mechanical systems.

“We’re definitely looking at more build-to-suit opportunities, building renovations and even some well-placed spec offices,” confirms Jeremy Bardin, executive vice president of HITT’s Base Building sector.

Mission Critical/Technology

Growth in the technology/mission critical markets has been fueled by federal, corporate, biotech, medical and even personal demand. Part of this is driven by the overall increase in technology services and applications such as online retail and banking, Facebook, Smartphone apps, storage and delivery of media (video and music) and multiple home and office computers.

“We see this trend continuing over at least the next 10 years,” says Ross Rebraca, Director of Technology, HITT Contracting.

The data center construction market continues to evolve and change. “Clients and end users now evaluate a growing range of criteria and the associated costs,” explains Rebraca. A number of factors determine cost and rating; however, the main criteria are the robustness of the design and the dependability of the mechanical and electrical systems installed to support the computers.

A common tier grading system is used to rank data center construction. A Tier-1 site has minimal back up with no redundancy in systems. Costs range between $500 per square foot to $600 per square foot. At the highest end, a Tier-4 site contains at least two discreet levels of system redundancy with fully maintainable systems. Costs can range from $1,000 per square foot to $1,200 per square foot for this level of uptime.

Three-dimensional applications, such as Building Information Modeling (BIM), have been extremely helpful in designing and constructing larger base building data center projects and other complex project types that require an enormous amount of coordination between the mechanical, electrical, fire suppression, and control systems. These applications also have the capacity to map out schedules and change like objects throughout the plans, saving time and adding value. Another benefit is that 3D objects can be taken from the model directly to fabrication.

“It’s a sea change, somewhat equivalent to when the industry started designing with CAD,” says Fox. “With Revit the amount of information and the accuracy of the drawings increase exponentially. It allows designers, consultants and contractors to identify conflicts earlier on the drawings.”

Multi-family Housing

Change is in the wind with respect to the housing market as well. Dr. Fuller’s research cited a demand for more than 300,000 new housing units by 2030 in Northern Virginia. These numbers do not reflect the housing demand that will be generated by workers coming to the region to backfill jobs vacated by retirements; however, he indicated that a declining proportion of these new units will consist of traditional suburban-style homes. Instead the market for multi-family condos and rentals will expand dramatically as Northern Virginia becomes increasingly urban in its future development pattern.

Sandy Silverman, principal with The Lessard Group that designs multi-family and mixed-use complexes, is now seeing more privately financed projects in the pipeline compared with a year ago.

“There’s definitely an increased demand for high-rise apartments delivering in smart growth areas and in urban infill locations. We’re still not out of the woods yet as far as the recession goes, but rental housing looks to be promising particularly in urban markets,” indicates Silverman.

The recession has influenced the size, design and amenities packages offered in apartment housing. Developers are decreasing the size of units from what was standard five to 10 years ago and making up the difference with open plans, more access to daylight and high-end finishes. Today a typical multi-family unit mix is more studios and one bedrooms, with two bedrooms being a less popular model.

“Unit sizes have definitely contracted over the years,” says Silverman. “My estimate is they’re about five percent to seven percent smaller.”

Silverman says many of the buildings in design before the recession were going to be condominiums. Standard finishes included granite countertops and stainless steel appliances; and large amenity areas were commonplace. Since the recession, many of these buildings converted to rentals and raised expectations in that market.

“Fitness centers are now the number one amenity. Almost no one builds tennis courts anymore. Pools with large deck areas are still popular and rooftop terraces are also important in urban areas where outdoor space is a premium,” explains Silverman.

Hospitality, Education and Healthcare

Hospitality
The hotel market that has been nearly dormant for the past couple of years is on an upswing again. Investors are looking to capitalize new hotels and hotel renovations in prime locations.

“Hotel redevelopment continues to be a viable market,” confirms Yogen Patel, executive vice president, HITT Contracting. “We’re now completing the Hay Adams Hotel renovation, where we added new floors and a kitchen to the historic structure and we’re looking at several other opportunities.”

Brent Farmer, chairman of Baskervill, an international architecture, engineering and interior design firm, also sees new opportunities in the hospitality market in Richmond and other parts of the region. “In recessions, hospitality is typically one of the first markets to recover,” states Farmer.

Education
The education market for both K-12 and higher education had seen a slowdown because of the recession. Stimulus funds have helped bring some of those publicly funded projects back; and a growing number of adults returning to community colleges and universities for retraining or advanced degrees has increased the need to grow those facilities.

“As the economy improves we are seeing more education opportunities in the pipeline,” said Patel.

Healthcare
As the medical profession changes to better serve its patients, the way in which contractor teams deliver services is changing as well.

“A positive trend we see is the growth of IPD (Integrated Project Delivery), a delivery method between the client, architect, contractor and subcontractors,” says Nick Raico, executive vice president of HITT Contracting’s healthcare sector. Under the IPD delivery method the project team shares the same contract. “This fosters greater efficiency and strengthens the team relationships,” explains Raico.

In addition, advances in technology, medical research and healthcare specializations drive change management in patient care and facilities. For example, whereas patient care used to be divided among several rooms, today we’re seeing the evolution of operating rooms into Hybrid OR’s that feature the OR and CT room sharing one space.

“We see the healthcare market continuing on a growth path,” says Raico. “Many of our healthcare clients are starting to plan, design and build in their hospitals.”

In short, 2011 looks like it will be a prosperous year for the healthcare industry.

Federal

The federal government is continuing to absorb and build large blocks of space that include a variety of agency and BRAC requirements. For the larger projects, design-build has been gaining favor for several years as the preferred development process.

“Roughly 80 percent of the large federal procurements are design-build; and many of those are fast-track as well,” affirms John Britt, executive vice president of HITT Contracting’s federal sector. One such project is Arlington Service Center in Arlington, Virginia. The scope of the project includes renovating four buildings for anti-terrorism and force protection, progressive collapse and complete building modernization, to be completed in six months for NAVFAC.

As work in the private sector decreased, more firms have sought federal contracts. In addition to design-build, contractors are competing for Indefinite Delivery contracts and Task Order contracts that set minimum and maximum ranges of revenue for a period of one to five years. Those contracts can include security installations, renovation, office fit-out and mechanical and electrical upgrades.

The Base Realignment and Closure Act (BRAC) has been a source of contractor work as well in Northern Virginia, Maryland, Richmond and Hampton Roads. “Fort Lee has almost doubled in size, as most of the BRAC projects are nearing completion,” explains Farmer.
Other bases that closed previously are feeding the employment growth in Richmond and Hampton Roads; and in turn, that has fostered growth in Petersburg and Colonial Heights about 30 minutes from Richmond.

“GSA (General Services Administration) continues to push its sustainability mission out to the market,” says Kim Pexton, director of sustainability at HITT Contracting. In October the agency upgraded its requirements for LEED Gold certification as a minimum in all new federal building construction and substantial renovation projects. For GSA’s leased properties, new construction of 10,000 square feet or more must meet LEED Silver and for leased GSA space in existing buildings, LEED Commercial Interiors is optional.

Conclusion

Getting through the recession has helped many companies to become more strategic and proactive. It has also fostered a deeper appreciation for the relationship aspect of our industry.

“It was client service and client loyalty, along with competitive pricing and schedules, that saw our company and others through this downturn,” states Jim Millar, co-president of HITT Contracting.

In almost every sector, there seems to be a consensus that we have passed through the bottom of the market and things are picking up slightly. “We hear from our subcontractors that they’ve gotten through the panic mode,” says Bill Marcotte, vice president, director of preconstruction, HITT Contracting. “There’s more stability now.”

Although civil engineers and architects are once again conducting due diligence studies and planning new projects, many experts believe this recovery will happen at a slower pace than ones in the past. Regardless, most in our industry look forward to the New Year and better days ahead.
Elaine Gray is director of base building and institutional business development for HITT Contracting Inc, www.hitt-gc.com, a national, full service general contractor. She is also an adjunct professor at the University of Maryland Colvin Institute of Real Estate Development, School of Architecture, Planning, and Preservation Graduate Program.

By: Elaine Gray HITT Contracting Inc.

Reprinted from Commonwealth Contractor, January 2010, a publication of Associated Builders and Contractors-Virginia Chapter. Copyright 2010. All rights reserved.