By Stewart Navarre
A survey of commercial builders in Orange County indicates that large ground-up projects continue to be delayed by big national chains as well as major businesses in the county due to economic uncertainty.
Many projects are being estimated and booked but are being delayed four to six months.
In retail, the bankruptcies of Mervyn’s LLC, Circuit City Stores Inc. and other big retailers have chilled the climate for smaller operators to either expand or take on additional locations. Conversely, this same trend is creating opportunities to reposition these same locations as smaller stores and leasing them to retailers such as Best Buy Co. and other survivors.
Numerous design firms have tightened their belts and continue to do so as new work is delayed in planning and execution. Interior work continues to be in better shape than core and shell, which has virtually halted.
Slow Construction
Construction for industrial buildings continued to slow during the first quarter,new building currently consists of one project of 53,000 square feet in the airport area.
According to the Building Industry Association of Orange County, no new permits had been filed for industrial buildings during the first two months of 2009. During the same period in 2008, permits filed were valued at $6 million.
Despite the current office vacancy rate of 16.1%, one office building of about 81,000 square feet is under construction in Central County at 1525 North Tustin Ave. in Santa Ana. No new permits have been filed for office buildings during the first two months of 2009 versus permits valued at $5.3 million during the same period in 2008.
Two retail centers totaling 291,000 square feet in West County continue to be under construction. Permits valued at $6.2 million had been registered during the first two months of 2009 versus $18.2 million a year earlier.
Permits for 35 apartment units were registered during the first two months of 2009 versus 822 units a year earlier.
As it relates to costs of construction and materials, subcontractors continue to aggressively price services at a discounted rate of 10% to 20% from 2008 pricing in order to win business, maintain the health of their core businesses and stretch to the expected turn up of the economy,estimated to be the fourth quarter of 2009 or first quarter of 2010.
The Producer Price Index for construction materials and components declined 10.9% for the fourth quarter and another 6.4% for the first quarter 2009. Petroleum-based products continue to lead the decline, while concrete and steel products eased less than 1%. We expect to see lower average prices in 2009 compared to 2008 for diesel, asphalt and steel, while concrete, gypsum, copper and wood could see increases.
Navarre is the Southern California managing director of project management in the Newport Beach office of CB Richard Ellis Group Inc.
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