In putting together our annual issue dealing with the economic forecast and accompanying industry opinion for the coming year, we solicited insights and analysis from numerous representatives of the Southeast's A/E/C industry. One of our most prominent sources was Luther Cochrane, chairman and chief executive officer with BE&K Building Group of Charlotte, N.C. Cochrane was extremely forthright in his assessment of the coming year. Unfortunately for Southeast contractors and design firms, it wasn't a very positive assessment, offering only a glimmer of hope.
As you'll see in the text below, Cochrane is indeed pessimistic, but also thinks the current downturn is most appropriately viewed as a "wake-up call." Said Cochrane: "If you look at this industry, every now and then we need to get our heads screwed on right and get back to basics. This is a wake-up call, and we’re suffering it just like anybody else."
At the same time, he adds, 2010 will be extremely challenging to the region's contractors and design firms, and will likely result in a case of "hand-to-hand combat" between firms as they fight to survive.
Following is an extended version of our interview with Cochrane.
Southeast Construction: How do you see 2010?
Luther Cochrane: My crystal ball says 6-9 months into 2010, things might start to get better. But I don’t think it’s going to happen much before that. Early in 2009, we thought 2009 was going to be the bad year. Turns out that 2009 is (just) a pretty bad year, and 2010 probably will be worse.
If you don’t do federal stimulus-supported work, if you’re a traditional commercial builder, this market has shrunk dramatically. Everything commercial has slowed down fairly significantly.
SEC: Do you see anything positive for the coming year in the Southeast?
Cochrane: If there is an area where there’s still something going on, because of the demographics it’s the Southeast. Florida will have to absorb a glut of condominiums. Florida’s going to take a little while to work out, because overbuilding there was so great. And Atlanta’s going to be dramatically overbuilt in offices. They’ve got some towers coming out of the ground that will take years to put tenants in. But there will be in-fill opportunities in Atlanta. It’s too good a market.
The Carolinas are the hidden gem in the South. South Carolina’s in pretty good shape (for instance).
SEC: How do you see the stimulus impacting activity in the coming year?
Cochrane: It’s going to start to make a difference in 2010, if you do that type of project. It was a little slow getting in circulation. It’s just beginning to get some traction.
SEC: How do you see lending activity in 2010?
Cochrane: (Laughs) It’s real hard to get anything financed. You can get a loan if you’ve got a lot of equity and you can prove that you don’t really need the money. Financing is extraordinarily difficult. (Lending of smaller, regional banks) is going to be dramatically curtailed. I am hoping that (banks) loosen up a little bit in 2010, but I don’t think you’ll see the availability of financing in 2010 even like you saw in 2009, and certainly not like you saw in 2007.
We’ve got to work through all of this commercial real-estate crisis before they’ll start lending to commercial projects again. We’ve got to have some job growth. And we’ve got to have consumer confidence come back. We need people to spend again - but we also need people to pay down debt. Those two things are hard to do together. We’ve got a fair number of issues before banks start lending again.
SEC: How will all of this impact construction firms and their ability to stay viable?
I think we’ll see more jobs lost net in 2010. We’ll see the decline (in employment) moderate around the middle part of 2010. Architectural firms will continue to shed people. Subcontractors who are taking work awfully cheap right now will pay a price. (Large contractors) are all looking at their overhead, and paring down as workload comes down. We’ll continue to shrink as an industry. I don’t think we’ve hit bottom yet.
(Overall), it’ll be hand-to-hand combat. The strong will survive. There will be a flight to quality. If we can get through the first six months without any crazy things happening, we’re going to start to see things get a little better. If we can get through 2010, 2011’s going to be better. ‘Better’ is a matter of degree.