No metro area has benefitted more from the uptick in federal spending on construction than did Washington, D.C., but the area hasn’t been immune from the woes of private-sector development.
Contractors continue to see limited opportunities in commercial and multiunit residential work, making competition for federal work even more intense. One hope now is that once government projects start to slow down, the private sector can find its footing and begin to build again.
Stephen Fuller, director of the Center for Regional Analysis at George Mason University in Fairfax, Va., says he still sees a lot of hesitation in the market among developers, especially in light of high vacancy rates around the area.
“It’s hard to imagine real sustained growth before 2012,” he says. “There just isn’t any big spark in the market at this point.”
Although new commercial building could remain on hold until vacant space begins to fill up, tenants continue to move around and generate fit-out work. Andrew Rollman, leader of the Workplace practice at design firm SmithGroup in Washington, says his firm has seen a steady growth in interiors work this year among both government and private clients.
“Ten months ago, it was soft, but now that’s a busy market for us,” he adds.
SmithGroup is working on interior designs for the upcoming relocation of Veterans Administration employees to 425 Eye Street. Nearly 1,000 employees will relocate into 285,000 sq ft of swing space at the location by June 2011, while the Lafayette Building is renovated. The construction contract for the five-year renovation has yet to be awarded by the U.S. General Services Administration.
The GSA is also planning a temporary move of about 1,200 employees into 330,000 sq ft of space at One Constitution Square while its headquarters building at 1800 F Street NW is renovated. That five-year project, which begins next year, was expected to be awarded in late summer.
Both the Lafayette Building and 1800 F Street are among area projects that were jumpstarted by nearly $1.2 billion in GSA funding for local projects made available through the American Recovery and Reinvestment Act.
Gilbane Building of Laurel, Md., and Grunley Construction of Rockville, Md., are currently working in a joint venture on phases two and three of the Herbert C. Hoover Building in Washington, which is funded by $161 million appropriated through ARRA. Those phases are scheduled to complete in July 2013.
While the majority of the industry is in a slump, Grunley has been growing over the past year, says Joel Zingeser, the firm’s director of corporate development. In March, it received notice to proceed on the last of four phases of modernization work at the U.S. Dept. of Interior’s headquarters building. The $51-million project will complete in September 2011.
Grunley has also finished a $66-million modernization of the Mary E. Switzer Building.
Zingeser says he sees continued opportunities for the company in the near future but isn’t sure how long the wave of work will continue. With available ARRA funding soon to run dry and the Dept. of Defense’s Base Relocation and Closure projects also coming to a close, major projects could be limited in the future.
“The BRAC program is winding down and the stimulus is running its course,” Zingeser adds. “There’s a lot of work being put in place. One could suspect that with the pressure on Congress to reduce the deficit, or get it under control, that there will be less spending on capital projects in the future.”
Even if government-funded projects continue to roll out, the bidding lists could remain crowded until the private market picks up. Gilbane Building has kept a steady flow of federal work through the recession so far. In addition to the Herbert C. Hoover Building, the company is also renovating the 150,000-sq-ft National Academy of Sciences Building in a joint venture with the Christman Co. of Alexandria, Va. The project is scheduled to complete in May.
In January, Gilbane was selected to manage design and construction of the Dwight D. Eisenhower National Memorial. However, Mark Luria, Gilbane’s DC and Northern Virginia area manager, says bidding on work has becoming increasingly risky as desperate contractors drive prices to unsustainable levels.
“I’m concerned for owners,” he says. “They are seeing a [bidder] pool that is a mile wide and an inch deep. We’ve chosen not to go after some projects because we feel [pricing] has gotten to the point where it could be dangerous to the long-term relationship with that client.”