Projects poised on horizon

Projects poised on horizon

Housing expected to rebound, but commercial construction faces challenges

December 28th, 2009 in News

UNDER DEVELOPMENT

* TVA's $2.5 billion completion of a second reactor at the Watts Bar Nuclear Plant, slated to be done in 2012.

* Volkswagen's continued construction of $1 billion auto assembly plant scheduled for completion in late 2010.

* Wacker Chemical Co. plans to start building $1 billion polysilicon plant in late 2010 in Bradley County.

* Alstom Power should complete a $280 million expansion of its Chattanooga plant in the next year to make nuclear power plant components.

* EPB is spending more than $150 million laying more fiber optic and installing smart grid and video connections throughout Chattanooga in the next year.

* Chicago Bridge & Iron plans for $110 million nuclear equipment fabrication plant in Marion County may begin to take shape in next year.

* Gestamp Corp. is building a $90 million automotive equipment plant slated for completion in the next year near the new VW assembly plant.

* IVC Group Inc. will start building a $70 million vinyl floorcovering plant in Dalton, Ga., next year.

* Whitfield County, Ga., plans to build a $43.3 million high school, slated to open in 2011.

* Major retail project, code-named "Project Hilltop," is planned for 62-acre tract in Fort Oglethorpe along Interstate 75.

* 3H Group plans to start work on a $16 million Spring Hill Suites by next summer to anchor what could grow into an $80 million riverfront project with a marina and condos.

* Walker County recently bought 95 acres in Rock Spring, Ga., and soon plans to build a K-8 school.

* Chattem Inc., which will be acquired by Sanofi-Aventis in the first quarter of 2010, continues building a $35.5 million production facility.

* Westinghouse Electric Co. is finishing work on an office complex as part of its $25.2 million investment in a new complex in the Centre South Riverport.

Sources: Tennessee Valley Authority, Volkswagen, EPB, Chattanooga Area Chamber of Commerce, Marion County, Dalton/Whitfield County Chamber of Commerce

2010 FORECASTS

* IHS Global Insight predicts construction spending nationwide will decline another 5.6 percent in 2010 after falling 12.2 percent this year. The industry is projected to bounce back in 2011 with a 7.6 percent growth and rise to double-digit growth levels in 2012.

* The National Association of Realtors predicts home starts will jump by 35 percent in 2010 after plunging 38.9 percent this year and 33.3 percent in 2008.

* The National Association of Realtors predicts office vacancy rates will rise to 18.5 percent and rents will decline another 8.5 percent in 2010. Industrial vacancy rates are forecast to increase to 15.4 percent next year.

THE SERIES

* Sunday: Economy: Chattanooga should fare better than the nation.

* Today: Construction: Big projects on the horizon

* Tuesday: Technology: Virtual office and working at home

* Wednesday: Government: Tight budgets even as Uncle Sam grows

* Thursday: Money: Limited wage increases, inflation

* Friday: Environment: More mandates and more green initiatives

When his luxury homes were selling briskly on Tellico Lake in 2006, Maryville developer Mike Ross laid out plans for another 5,000 lakefront or mountaintop home sites across East Tennessee.

But three years later, most of those plans remain on the drawing board. The bank that funded what would have been the largest residential complexes in Marion and Meigs counties - Rarity Club on Nickajack Lake and Rarity Rivers on Watts Bar Lake - foreclosed on those developments this year after only two homes were built. Mr. Ross concedes that sales at his other projects remain "at a slow pace due to the economy."

Home builders and developers such as Mr. Ross have felt the brunt of the worst economic downturn in decades. But after three years of consecutive, double-digit declines in home starts across the Chattanooga region, builders are looking for a rebound in 2010.

"The whole market was shaken upside down, but we're definitely coming back and selling homes again," said Tim McClure, a 25-year Chattanooga builder who is president of the Home Builders Association of Southern Tennessee. "Chattanooga doesn't have the oversupply of homes that we see in a lot of markets. With some of the new businesses and relocations we have going on here, I think there could be a tremendous turnaround by next summer."

Home builders are being aided by recently extended home-buying credits. Local commercial contractors also should benefit from planned and ongoing developments spurred by Volkswagen's Chattanooga assembly plant and new energy-related investments in the region.

Collectively, building projects worth more than $5 billion are under way or on the drawing board in the Chattanooga region for everything from new factories and power plants to shopping centers and schools.

"Chattanooga is a bit of an anomaly, because you have a lot of good things going on in the economy there with Volkswagen and other projects," said Dale Akins, president of The Market Edge Inc., which has been tracking the construction industry in the mid-South region since 1993. "Home starts haven't shown a rebound yet, probably because there hasn't been a lot of hiring yet by Volkswagen. But I think you'll see some real improvement in 2010, provided that interest rates or construction material costs don't skyrocket."

In the Chattanooga region, which includes Hamilton and Bradley counties in Tennessee and Catoosa, Walker and Whitfield counties in Georgia, home starts have dropped by more than 70 percent since their peak in 2005, according to The Market Edge. Based upon trends in the first three quarters of the year, permits are expected to be issued for fewer than 1,300 homes in the region for all of 2009, down from the peak of 4,484 in 2005.

"The market has definitely been on a pause button," said Randy Durham, president of the Chattanooga Association of Realtors. "But I think we're going to see more activity next year than we've seen in the last 18 months."

Mr. Durham said home starts and developments fell to their lowest levels since the early 1980s in the past couple of years. But he expects relatively low interest rates and construction costs, combined with tax credits of up to $8,000 for new home purchases, will cut the costs of building and spur more home construction.

Signs of caution

But while home starts should rebound, commercial construction may continue to lag, according to forecasts by IHS Global Insight, which predicts another 5.6 percent decline in the value of nationwide commercial construction in 2010 compared with 2009. With unemployment lingering at double-digit levels, office and industrial building vacancies still are increasing and banks are reluctant to lend for speculative new retail or hotel projects.

Luxury developments such as Mr. Ross' Rarity Communities also must buck adverse economic winds from tighter credit standards by lenders and fewer relocating retirees. To lure wealthy investors to East Tennessee, home buyers often must sell their existing houses elsewhere in the country, often in markets where sales and prices have slumped, Mr. Ross said recently.

Roger Tuder, executive director of the Associated General Contractors of East Tennessee, said the building industry remains troubled in the current economy, with nearly one of every seven construction workers out of a job.

"The construction industry is one of the first to experience the massive pressure applied to our employers, employees and their families in depressed economic conditions," Mr. Tuder said.

Nationally the industry shed 947,300 jobs, or nearly 14 percent of all construction employment, over the past year, according to the U.S. Bureau of Labor Statistics.

Staff Photo by Angela Lewis Joaquin Serrato installs trim around windows on Frankfurt Road in Hamilton on Hunter North.

In Tennessee, construction employment fell at an even faster pace, shedding one of every five jobs, or 28,300 positions, in the past year. Unemployment among construction workers in Tennessee last month was 21.6 percent - behind only Arizona and Nevada.

Mr. Tuder estimates the federal stimulus plans should pump about $84 million into the Hamilton County economy for building projects. But nationwide, AGC of America economist Ken Simonson still predicts nonresidential building will be slower in 2010 while businesses wait for a stronger recovery to make major investments.

University of Tennessee economist Bill Fox said employment is likely to remain at or near 10 percent through much of the coming year.

"The pace of job losses is slowing, especially in manufacturing and construction," he said. "But it's going to be a long time before we get back to the robust levels we saw a few years ago."