Growth Corridors Signal How Future Development Will Unfold


Want to know where the most economic activity will take place in the next few years? Forget New England, the Pacific Coast and the shores of the Great Lakes. It’s time to look inward. So says a 2013 Manhattan Institute report, “America’s Growth Corridors,” which identifies four regions boasting population, income, employment and GDP growth—plus affordable housing, good business environments and the political will to exploit their natural resources.
  • The Intermountain West: Idaho, Nevada and Utah; northern Arizona and New Mexico; parts of western Colorado, Montana and Wyoming; and non-coastal areas of California, Oregon and Washington.
  • The Great Plains: Kansas, Nebraska, North Dakota,
Oklahoma, South Dakota,
 Texas, and Eastern Colorado,
 Montana, New Mexico
 and Wyoming.
  • The Third Coast: Portions of Florida, Louisiana, Mississippi and Texas along the Gulf of Mexico.
  • The Southeast Manufacturing Belt: Tennessee; eastern Arkansas; southwestern Virginia; and large portions of Alabama, Georgia, Kentucky, Mississippi, North Carolina and South Carolina.
By contrast, population growth is likely to slow down or remain subdued in the Great Lakes, Northeast and West Coast regions. In addition to having the lowest percentage of people under age 5, these regions will see residents migrate to the growth corridors to take advantage of lower taxes, better business opportunities and cheaper housing.

Certainly New York, Boston, Washington, D.C., Atlanta, Miami, Chicago, Houston, Los Angeles and San Francisco will remain leading metropolitan areas, but the Manhattan Institute report notes a greater emphasis on rapid urban expansion in places like
Dallas-Forth Worth, New Orleans, Denver, Salt Lake City and Oklahoma City, as well as Tampa, Fla.;
Charlotte, N.C.; Nashville, Tenn.; Omaha, Neb.; Sioux Falls, S.D.; Fargo, N.D.; Midland, Texas; and Baton Rouge, La.

The Intermountain West
This corridor, stretching from inland California to Denver and from inland Washington to New Mexico, has a job growth rate more than three times the national average (8 percent). It’s also home to the nation’s highest percentage of people under age 20, and boasts a well-educated population and tremendous natural resources.

Energy, technology, business services, agriculture and manufacturing continue to be major industries, with tourism and education expected to become more significant during the next decade.  

According to Jones Lang LaSalle, Salt Lake City has one of the nation’s lowest total vacancy rates (4.7 percent) for warehouse space. Meanwhile, the market for industrial properties is on the rise in Denver and Phoenix. Denver’s office market also is rising—with demand strengthening and vacancy rates decreasing—but Phoenix’s office market is still bottoming out.

Baker Construction & DevelopmentWith a 63-year history of working in 12 western states for both local and national clients, Baker Construction and Development, Spokane, Wash., has a good sense of what’s in store for this region. Senior Vice President of Business Development Reed Caudle expects to see the most activity along the I-5 corridor in western Washington and Oregon; however, growth is evident in the eastern portions of those states as well, plus eastern Idaho and western Montana.

“Seattle has come back stronger and more quickly than I expected it would during the last year, but that city can have high highs and low lows,” Caudle says.  “Idaho got kicked in the teeth by the recession, so there’s still a lot of commercial vacancy there and empty second homes. But it’s improving slowly. In the last few months, commercial realtors have reported a level of interest they haven’t seen in years.”

With strong tax incentives in place and fewer challenges associated with large metropolitan areas, portions of Idaho and eastern Washington offer an attractive live/work/play environment for high-tech companies migrating away from California. Other appealing traits of the Intermountain West include low energy costs and an abundant water supply.
Baker Construction & Development
“We’ve seen a fair amount of in-migration in previous years,” Caudle says. “It stalled a bit, but we expect it to come back.”

Baker Construction and Development is noticing a lot of activity in the financial industry from banks and lending institutions. Signs of improvement also are emerging on the retail side, with auto dealership upgrades linked to an uptick in consumer spending. Caudle says there is more retail activity now than in the last five years, but it’s a “musical chairs” situation, with stores moving from their existing locations to buildings with better lease rates.

Overall, Baker Construction and Development is starting to feel the effects of the economic recovery. Following a 50 percent drop in business in 2008, the firm has grown modestly since 2009 and logged the most significant growth in 2013 (close to 20 percent). Still, Caudle senses a lack of confidence in the long-term economy and executive branch from the firm’s clients, 70 percent of which provide repeat business.

“Businesses adapt well once they feel they have a strong foundation, but there’s no consistency at this point,” he says. “Some companies are tired of waiting and have decided to move forward. Other companies with several million dollars worth of business aren’t ready to commit.”

The Great Plains
The population for this corridor, which extends east of the Rocky Mountains through much of Texas, Missouri, Iowa and Minnesota, has grown 14 percent in the past decade (better than the national average of 9 percent). It also boasts the nation’s second fastest job growth rate, with an influx of younger, better educated and more diverse residents.

Major industries include energy, agriculture, technology and business services, with manufacturing and education growing in prominence during the next decade.

In Dallas and San Antonio, Jones Lang LaSalle reports office demand is strengthening, vacancy rates are decreasing and rental rates are rising. Some speculative development is under way for Dallas industrial properties, but demand for larger blocks of space will exceed any new supply and rental rates will increase in the near term. Dallas also had one of the highest absorption rates in the country at tHunt Midwest, SubTropolishe end of the second quarter of 2013.

Things are looking up in Kansas City, Mo., as well. Hunt Midwest, which controls more than 6,200 acres of Kansas City real estate, reports its 1,150-acre underground business park (SubTropolis) is 92 percent leased—the first time it has achieved that level of occupancy since the downturn. Additionally, the firm is developing 120,000 square feet of speculative space in SubTropolis for the first time.

Much of the activity taking place in the automotive sector is tied to the expansion of a Ford plant that will manufacture its Transit vehicle (previously only produced in Europe). Hunt Midwest has built or leased space for several suppliers setting up operations in Kansas City to support Ford’s billion-dollar investment at the plant.

“We expect this to be a driver for the next six to 12 months,” says Ora Reynolds, Hunt Midwest’s president of real estate development. “Depending on the success of the Ford Transit, other companies may relocate and make an investment.”

In terms of the technology industry, Reynolds says Google put Kansas City on the map in 2011, when it deployed its new fiber-optic communication network there. Today, the emphasis on connectivity is evident in Hunt Midwest’s first underground data center at SubTropolis.

Hunt MidwestE-fulfillment is another trend impacting local development, especially given Hunt Midwest’s proximity to a FedEx distribution facility. “New regulations limiting how far truck drivers can go on a daily basis has opened up opportunities in the warehouse market,” says Mike Bell, Hunt Midwest’s general manager of industrial and commercial real estate development. “With the push for e-commerce, products are going directly from warehouses to consumers, so we’ve seen a lot of interest on e-fulfillment in this region.”

Reynolds says other areas of growth include multifamily projects (even luxury developments), senior-level medical facilities (e.g., assisted living, skilled nursing and memory care) and energy efficiency upgrades. Plus, Hunt Midwest is involved in a $45 million public-private partnership to bring sewers—and potentially 75,000 new residents—to a large portion of northland Kansas City. That project will wrap up later this year.

The Third Coast
The job base for this corridor, which runs along the coastlines of Texas, Louisiana, Mississippi, Alabama and Florida, has expanded 7 percent since 2001 and is projected to grow another 18 percent in the next decade. It has a concentration of energy jobs five times the national rate, with business services and health care proving to be major industries going forward.

Additionally, the Manhattan Institute report predicts Mobile, Ala., will become a center point for trade with Latin America and New Orleans will become a cultural and business destination for the entertainment and software industries.

The report also positions Houston as America’s next great global city. According to Jones Lang LaSalle, Houston’s office market is peaking, with vacancy rates approaching cyclical lows, strong demand spurring new supply and new construction under way or in the pipeline. In terms of industrial property, Houston has the nation’s lowest total vacancy rate (4.1 percent).

Satterfield & Pontikes, which is headquartered in Houston and performs work throughout Texas and in New Orleans, confirms its work on private commercial and industrial development projects will continue to be strong for the foreseeable future. Following that will be an influx in public infrastructure work: libraries, schools, courthouses and roads.

Satterfield & Pontikes“One will feed into the other, and I expect that to be the state of play for the next couple years,” says Satterfield & Pontikes Vice President John Marshall. “Public markets had a lull during the downturn but are coming back now.  A lot of public owners have passed or are in the process of passing bond programs. We expect to do more public work as these programs take shape.”

This healthy blend of private and public work—driven primarily by the energy business—extends from the Gulf Coast to the Great Plains cities of
Dallas-Fort Worth and Midland, Texas, where there’s tremendous need for office, hotel, restaurant, retail and school development. In south Texas, infrastructure is getting a lot of attention because of the sheer number of people going to work on the Eagle Ford Shale.

“Jobs have been created at a pretty good rate in Texas and that attracts people, and then those people need all the infrastructure and services that counties, cities and school districts provide,” Marshall says. “We’ve talked for several years about the pent-up demand
and for a lot of people the time is right to start addressing those needs. It has the feel of a nice
prolonged expansion.”

The Southeast Manufacturing Belt
This corridor, which extends from Arkansas to southern Virginia and down through Florida, is establishing itself as the country’s second industrial hub after the Great Lakes due to large-scale investments from European, Japanese and Korean manufacturers in high-wage industries. In addition to manufacturing, business services and health care will be key industries going forward, with natural resources and aerospace remaining important.

Jones Lang LaSalle reports demand is strengthening in Atlanta’s office market, with vacancy rates decreasing and rental rates rising. Hampton, Va., and Charlotte and Raleigh/Durham, N.C., are on the cusp of bottoming out and moving toward a recovery in demand for office space.

On the warehouse front, Atlanta, Charlotte and Memphis, Tenn., have some of the nation’s highest net absorption and total vacancy rates (around 12 percent). As such, Atlanta landlords are pulling back on concession packages, including tenant improvement allowances and abated rent. In Charlotte, demand for large blocks of contiguous space remains healthy, and activity is trickling down to smaller spaces (15,000 to 40,000 square feet).

These patterns are reflected in South Carolina, where Ohio-based Miller-Valentine Group expanded its operations in 2000 as part of a diversification strategy. According to Steve Koewler, president of the firm’s southeast commercial division, the Charleston, Columbia and Greenville, S.C., office markets have started to turn in the last 12 months, with some positive absorption in leasing. Meanwhile, industrial and warehouse activity is booming.

Miller-Valentine“I can think of five or six 1 million-square-foot distribution centers that were built in the last few years,” Koewler says. “Companies like Home Depot are shutting down a few smaller regional distribution centers and building one mega center. Retailers know the exact inventory they need based on buying habits, and are putting pressure on manufacturers to only receive the amount they need. That forces manufacturers to be able to break down and store different quantities.”

The same trend is evident in Miller-Valentine’s Midwest operations. “These ‘compactors’ are generating business for us because they want to be more operationally efficient with one distribution center rather than three,” says Chris Knueven, president of the firm’s commercial construction division in Cincinnati. “We’re seeing more on-shoring too. Customers that were making parts in China now want to make them in the Midwest because shipping costs are lower and Asian labor costs are going up.”

With more being produced domestically, exports are increasing and impacting activity at the Port of Charleston. Other economic engines for South Carolina include BMW and Boeing, as well as the University of South Carolina. Plus, the multifamily and hotel markets are the hottest Koewler has seen in the last decade.

South Florida stands out from the rest of the southeastern manufacturing belt with a focus on the trade, tourism and entertainment industries. While Jones Lang LaSalle reports Miami’s office market is rising, the Orlando, West Palm Beach, Fort Lauderdale and Jacksonville, Fla., markets are still bottoming out—with supply ahead of stagnant demand, falling rents and rising vacancies.

On the industrial front, Tampa, Palm Beach and Miami are faring better than Fort Lauderdale, Orlando and Jacksonville—but none are close to peaking yet.

According to Fort Lauderdale-based Stiles Construction, the real activity for the next three to five years is in the residential and retail segments. Stiles has developed more than 37 million square feet of space across Florida during the past 63 years, and recently formed a residential development group for Palm Beach, Broward and Dade counties focused exclusively on rental apartments.

“From 2004 to 2006, more than 25,000 apartments were taken out of the rental market and converted into condos,” says Jay Jacobson, Stiles’ president of residential development. “With all the condo and for-sale housing development, there was little apartment development going on during that time. We are making up for the lost inventory right now.”

Jacobson forecasts the region is only in the “fourth inning” of residential growth as new households are formed through in-migration and job opportunities—characteristics that are representative of other Southeast markets such as Atlanta and the Tampa/Orlando corridor.

Retail is following suit with new stores moving into the market. Stiles followed long-time client Publix to expand its grocery store chain in North Carolina, and Jacobson says Dade County is under-retailed now in terms of population.

“South Florida is working its way out of the recession into a semi-boom time. Hopefully that will stabilize and continue to grow,” Jacobson says. “The only thing that could screw it up is political upheaval in Central or South America, or U.S. political upheaval. Investors don’t like uncertainty.” 


Labor: A Nationwide Concern
“Our biggest concern is subcontractors and suppliers that went out of business in the last five to seven years. We’re waiting for them to regroup and for new companies to form so qualified skilled labor comes back. That market is extraordinarily tight right now.” – Jay Jacobson, Stiles Construction, Fort Lauderdale, Fla.

“We’re seeing the trade labor we need right now, but in the long term we’re concerned about being able to bring up bright talent in the company. The number of people coming out of construction and engineering programs is remarkably low.” – Chris Knueven, Miller-Valentine Group, Cincinnati

“A lot of people got out of the business during the downturn and haven’t been as quick to return. The industry will become attractive again and I expect to see people re-enter or enter for the first time, but I think it will lag behind the demand.” – John Marshall, Satterfield & Pontikes, Houston

“We’re already feeling the shortage and it’s one of our biggest concerns down the road. The majority of folks who are really well skilled are getting older. One of the misconceptions is young folks think construction jobs don’t pay well. But if you get into a specific skilled trade, it can pay very well. We try to get that message out when we talk to high school groups.” – Reed Caudle, Baker Construction and Development, Spokane, Wash.


World View
The volume of global construction output will grow 70 percent for a total of $15 trillion within the next 11 years, according to the Global Construction 2025 report presented by Global Construction Perspectives and Oxford Economics. China, India and the United States are expected to account for nearly 60 percent of worldwide growth. In contrast, the construction market in Western Europe will be almost 5 percent smaller in 2025 than its 2007 peak. Overall, construction will account for 13.5 percent of world GDP by 2025—up from 12.2 percent in 2012.

Following are more findings from the report.
  • The United States has the second largest construction market worldwide, and output will grow more than 75 percent by 2025.
  • The North American construction market will be almost 40 percent larger by 2025.
  • China will represent more than a quarter of global construction output by 2025—up from 18 percent in 2012.
  • India’s construction market will grow faster than China’s between 2012 and 2025, and India will overtake Japan as the third-largest construction market by 2022. 
  • New “Asian Tiger” construction markets include Indonesia, Vietnam and the Philippines. 
  • Russia will become the sixth largest global construction market by 2025, but Turkey will experience the most rapid growth in the Eastern European region.
  • Mexico, Chile and Colombia will drive growth in Latin America, though overall it will be at a slower rate than the global average.
  • Qatar will boast the world’s fastest growing construction market by 2025 due to economic diversification and hosting the FIFA 2022 World Cup.
  • Nigeria will boast the world’s second fastest growing construction market due to rapid population growth.
For more information, visit www.globalconstruction2025.com.


Joanna Masterson is editor of Construction Executive.
 For more information, email masterson@abc.org, visit
 www.constructionexec.com or follow @ConstructionMag.