Construction Will Hold Steady

As the incoming chairman of the Associated General Contractors (AGC), Greater Detroit Chapter, it's my pleasure to present the 2004 outlook for the construction industry in Southeast Michigan.

I'll reflect on 2003, share our expectations for 2004, and then provide a market segment overview

As we look at 2004, the news coming from Wall Street is that the economy is on a climb, and a return to some level of economic prosperity is only around the corner.

But in the world of construction, our recovery typically comes after other sectors, such as automotive and retail, experience a boost in their fortunes, and owners begin making decisions to expand their operations through the construction of new facilities or the renovation of old ones.

But despite this lag, AGC contractors believe the outlook for the Southeast Michigan construction industry is one of opportunity.

Our expectation for 2004 is this: Activity will hold steady for the start of 2004, and then see a solid increase as we move into spring and summer.

While you won't see a skyline filled with cranes and all of the workers on the bench today being called back to jobsites, you will see many of the talked-about projects for Detroit and the suburbs finally breaking ground.

Every person and business in Southeast Michigan is touched by the automotive industry, and construction is certainly no different. According to the Bureau of Labor Statistics, it is expected that specialties tradesmen's hours worked will be an estimated 17 percent lower in 2003 than reported in 2000.

But I am pleased to say we are beginning to see renewed interest on the part of the auto companies to build and renovate structures. This bodes well for other sectors, such as retail and services.

As for specific construction industry segments in our region, here are the highlights. First in the general construction market, some projects that have recently been announced or where work is currently under way include:

• The new Federal Reserve Bank Building that is under construction in Eastern Market.

• Marathon Petroleum will begin pumping $300 million into its Southwest Detroit refinery, creating 350 jobs in the first phase of a major overhaul.

• And from General Motors' headquarters at the Renaissance Center in Detroit, east through the Harbortown area into Macomb County along the Detroit River and Lake St. Clair, new housing, retail and entertainment venues are either under way or planned.

• An article published in the October 5, 2003, Detroit News listed hundreds of millions of dollars in projects located in Detroit's Midtown District that are either under construction or planned.

Other projects that we may see in 2004 that must first overcome political, legal and financial hurdles include:

• The much-anticipated three permanent casinos in Detroit. If we could only get those projects past the obstacles they face, thousands of construction jobs and millions of dollars in payroll would be added to our marketplace. Each would add banquet facilities and 400 top-quality hotel rooms to the downtown inventory, making our region a more attractive convention destination while adding hundreds more permanent jobs. Investment in these three projects is expected to exceed $1.2 billion.

• The long-anticipated renovation of the Book-Cadillac Hotel. Major work on the Book was expected to begin in 2004, but financial concerns have cast a cloud over it. Hopefully these concerns are resolved, allowing work to proceed.

• $875 million in bonds are expected to be on the market within the next few weeks to finance the new North Terminal for Detroit Metropolitan Wayne County Airport, as well as the expansion of Concourse B and the reconstruction of Concourse C at the Midfield Terminal.

• And, I am sure, many of you in this room would like to see the much-needed expansion of Cobo Center into a world-class convention destination — a widely discussed project that would definitely help our economy.

We have a huge deadline looming over us: The Super Bowl at Ford Field in Detroit in 2006. The sporting world, along with many visiting business decision-makers, is expecting a city of Detroit different than what we see today. We need more hotel rooms, better infrastructure and an effort to renovate existing buildings along Woodward.

I congratulate Detroit Mayor Kwame Kilpatrick and Super Bowl Committee Chairman Roger Penske for their efforts. However, if we are to meet their goals, construction needs to start now.

In the manufacturing market, some analysts are predicting 2004 to be a better year for auto production. Ford, General Motors, DaimlerChrysler and other firms are proceeding with caution, but there are solid signs that they, along with many tier one suppliers, will move forward with plans to renovate or build structures.

Ford recently announced plans to spend $410 million to expand production at its plants in Wayne. Construction of the $50-million DaimlerChrysler engine plant in Dundee is under way, and the massive $2-billion renovation of the Ford Rouge facility continues.

Auto suppliers with projects committed or under way in our region include Hyundai, Robert Bosch, Unique Fabricating, Dana Corporation, Faurecia, BorgWarner, and Lear, along with the ongoing construction of the new Visteon headquarters campus in Van Buren Township. And we celebrate the recent completion of the American Axle Headquarters building in Detroit, and their continued investment in the Detroit community.

Public sector construction and the building of schools, roads and sewers has been a main source of work for many contractors and building trades workers.

Public buildings: Michigan is facing an estimated $900-million budget deficit, which doesn't bode well for state building projects or for dollars trickling to local governments for buildings and infrastructure.

Public schools: Many AGC contractors are involved in building schools throughout our region, and the strong activity level is expected to continue well past 2004. For example, the massive $1.5-billion building and renovation project for the Detroit Public Schools is just over 50 percent of the way. Likewise, suburban school districts, from Port Huron to Monroe, will be adding hundreds of millions of dollars to construction volume in 2004, supported by recently passed bond requests.

Higher education: Construction of facilities at Wayne State University, including student housing and the $75-million Next Energy project, are worth noting. Additional work at The University of Michigan, including a new law school, heart center, engineering building and public health facility, is under way or expected to start soon. All told, more than $400 million in construction is represented at these universities alone.

Underground construction: The $1-billion bond initiative passed by Michigan voters in 2002 will begin pumping $100 million each year for the next 10 years into the hands of local leaders for badly needed water and sewer projects. Another $250 million is budgeted for 2004 assuring safer, cleaner water for us all.

Locally, work will continue on major upgrades to Detroit Water and Sewerage Department treatment facilities and the expansion of storm water control systems.

Highway construction: While the federal highway funding for 2004 won't be final until February, the Michigan Department of Transportation predicts the level of funding to be $1.3 billion — equal that of 2003. The $1.3 billion in construction means 61,750 jobs and $7.8 billion in spin-off activity.

In residential housing, 2004 is anticipated to be another strong year, with single family housing to be on par with 2003 but multi-family housing seeing a decline. Of special note is senior housing, which again is expected to be a strong and growing part of the market.

The Southeast Michigan multi-tenant office market did not see any significant new construction in 2003, and we won't likely see any during 2004.

However, build-to-suit activity has seen a noticeable increase. Medical office and professional/financial service industries are driving the demand.

On the retail/restaurant front, good news seems to be found in the city of Detroit, with several store openings in recent weeks. Job creation downtown is sure to lead to additional retail and dining investments.

In the Detroit suburbs, upgrades at existing malls, such as Eastland in Harper Woods, as well as commercial strips along our many roads, will be the most we can expect during 2004. In particular, Macomb County, Dearborn and Western Wayne County are buzzing with small retail development, including bank branches. Citizens Bank, Standard Federal and Fifth Third are on aggressive building schedules.

In the area of healthcare, there is expansion into the growing Detroit suburbs by Henry Ford Health System and Providence Hospital, and others are striving to do the same. Upgrades of existing facilities in the areas of emergency care and the quality and design of patient rooms is ongoing.

In the world of arts and entertainment, a major capital campaign at the Detroit Institute of Arts has raised funds necessary for renovations and other priorities, and construction continues.

Editor's note: The following is from a speech that William T. McCarthy, president of McCarthy & Smith and 2004 chairman of the Associated General Contractors, Greater Detroit Chapter, gave at the Detroit Economic Club's Annual Economic Outlook Luncheon on December 8.