Companies Expect Building Slow Down - But Not Yet
After years of slow growth through a construction cycle that, historically speaking, should be headed for a downturn, developers in the commercial and multifamily building sectors are in uncertain territory.
RENDERING COURTESY OF RYAN COS.
After years of slow growth through a construction cycle that, historically speaking, should be headed for a downturn, developers in the commercial and multifamily building sectors are in uncertain territory. Many are already taking a more conservative approach to both and are preparing to shift resources toward other opportunities.
Mason Mularoni, senior research analyst in project and development services at JLL, says the office sector is “generally in a good place,” although with less volume under construction than during previous peaks. The commercial sector is eight years into the current “up” cycle, but, historically, cycles have lasted around seven years, he notes.
“The industry as a whole is worried about overbuilding,” Mularoni says. “We’re at a place that, historically, people aren’t comfortable with. With that, we see more moves to build-to-suit or high levels of preleasing. A lot of these office properties require years to hit the market, and a lot of banks are starting to slow down on funding office projects, making it harder to get office loans.”
Top Owners Sourcebook: Owners Ramp Up Programs
ENR 2017 Top Owners Sourcebook
Meanwhile, some companies are employing fewer people and compressing total square footage in office spaces, says Collin Barr, regional president at Ryan Cos. In the office sector, the firm has focused primarily on build-to-suit opportunities, recently completing large regional headquarters for insurer State Farm in Tempe, Ariz., and for Wells Fargo in Minnesota. Last year, Ryan broke ground on a new, 271,000-sq-ft regional headquarters for McKesson Corp.
Barr notes that, although many analysts are predicting multifamily residential is “near the end of its run,” Ryan Cos. continues to see opportunities in specific markets, especially in the Midwest. The company recently completed Aurélien, a $100-million, 31-story luxury apartment tower in Chicago. In June, it started a new six-story multifamily project in Phoenix.
The company is also cautiously pursuing mixed-use properties. In December, it completed its 2.3-million-sq-ft Downtown East project in Minneapolis, which includes a mix of office, residential, hotel and retail. “When there is a strong multifamily market and build-to-suit opportunities, you can deliver,” Barr says. “But we’re very careful to not speculate on too many uses.”
Looking for quick answers on construction and engineering topics?
Try Ask ENR, our new smart AI search tool.
Ask ENR →
Dave Menke, president and CEO of The Opus Development Cos., agrees that the multifamily residential sector is “later in its cycle” but still shows demand in specific markets. In many cases, Opus Group develops mixed-use projects that are primarily residential space. “Being at an urban location with existing street retail, you want to have [the building] fit in with that fabric,” he says.
In late 2016 in downtown Minneapolis, Opus Group started construction on a 30-story multifamily and retail development, dubbed 365 Nicollet. Also in the city, the company is building its Variant luxury mixed-use project, which features 14,000 sq ft of street-level retail, topped by five stories of apartments.
