Contractors Respond to an Acceleration of Commercial Activity

It has been a long time since the words “growth” and “retail” have been used in the same sentence in construction circles. In fact, for more than five years, commercial construction has either risen (or fallen) due to the indirect challenges of weak consumer spending, as well as changes in where, when, how and on what consumers spend their hard-earned dollars. 

Now, the numbers are showing that retail construction is enjoying a renaissance as consumers loosen the purse strings and regain confidence in the economy. And while department store closings remain the Achilles’ heel for malls, according to JLL, a financial and professional services firm that specializes in commercial real estate services and investment management, there appears to be ample demand for the new use of that space.

This boasts optimism in a facet of the industry that is in the midst of picking itself up and dusting itself off.

According to analysis of U.S. Census Bureau data released earlier this year, nonresidential construction spending slipped 0.7 percent in the final month of 2016, but it increased 4.6 percent compared to the previous year. 

“On the bright side, the architectural community became much busier in December, signaling an acceleration of commercial activity to come,” says Anirban Basu, chief economist for Associated Builders and Contractors. 

Commercial construction is up 12 percent year over year, which bodes well for companies that generate revenue from this segment of the industry.

Dodge Data & Analytics also recently released data on U.S. commercial and multifamily construction starts in 20 major metropolitan areas—showing that 16 areas experienced double-digit gains in 2016 compared to 2015—totaling $186.3 billion in starts, up 7 percent year over year. 

Rounding out the top five metropolitan areas in 2016 were Los Angeles at $9.8 billion in starts, up 44 percent from 2015; Chicago, $8.3 billion, up 34 percent; Washington, D.C., $8.1 billion, up 35 percent; and Dallas-Ft. Worth, $8 billion, up 16 percent. In addition, Miami, Boston, San Francisco, Atlanta and Seattle showed significant gains.

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For Barrie Deschaine, manager of business development for KBE Building Corporation, Farmington, Conn., one emerging pattern is property owners’ desire to combine entertainment and retail.

The $300 million construction firm points to its $17 million renovation of Jordan’s Furniture as an example of what it takes to blend entertainment with commercial construction.

Currently, the 193,000-square-foot store features the “World’s Largest Ropes Course,” as well as Waltzing Waters, the equivalent of a Las Vegas-style fountain show—complete with lasers and lights.

“To get anyone into retail stores, especially the next generation, you’re going to see this trend more and more —whether it’s restaurants or entertainment venues. These will be coming into strip malls,” Deschaine says.

Jim Culkin, chief operating officer for KBE Building, agrees, noting that customers want one-stop shopping.

“They want yoga, health care, all of it in one place, and stores are doing anything to bring customers in,” he says. “There are no
traditional shopping centers anymore. You’re going to see stores within stores, grocery stores at the mall, and it’s going to be an all-in-one experience.”

Richard Lovelace, senior vice president of Florida-based Stellar, cites Wegmans supermarkets in the Northeast as a retailer that is doing something innovative to bring customers inside, and generally create a more relaxed and memorable shopping experience by adding wine tasting facilities to many of its venues.

Recently, Stellar completed construction on the Tom Bush Family of Dealerships’ newest building: a multi-million-dollar 44,000-square-foot BMW dealership, including an open 12-car showroom and a 28-bay service shop in Jacksonville, Fla.

“This project presented an exciting challenge to retrofit an older building into a high-tech dealership in a busy retail area,” Lovelace says.

From its acoustical ceiling tiles, to a large centralized customer lounge with a coffee bar and other world-class amenities, the family-owned dealership spared no expense in creating a comfortable and inviting space for its customers.

Likewise, Washington, D.C.-based Rand Construction’s recent build-out of a Gucci flagship store in CityCenter—a 6,200-square-foot space that joins the area’s Tysons Galleria and The Collection at Chevy Chase—decided to cater to the customer experience and its high-end clientele. With its brushed concrete floor and attention to detail throughout, customers can browse the store’s products in style.

“This was a beautiful project to work on because of the location,” says Brian Shaver, project manager for Rand Construction.

Work, Live, Play

Retail trends are being dictated by two specific demographics: millennials and the elderly, both of which are looking for similar things. For millennials, it’s all about convenience and community, as well as the social aspect this demographic craves. For the older generation, convenience (i.e., living within walking distance of everything they want and need) is paramount.

“Big-box retail is going to decline, but I don’t think it will go away,” Lovelace predicts. “Work, live and play will continue to grow because of the millennial generation, and that trend will continue until the next generation wants to see something different.”

This speaks specifically to the Wal-Marts and Targets of the world, and while these structures won’t be disappearing, it’s the Dollar Generals, the Walgreens and the small neighborhood grocery stores that are seeing growth.

“We’re seeing a trend of smaller footprints,” Culkin says. “Also, more efficiency in layout, size, energy usage and implementation of sustainable energy—facets that wouldn’t have been thought of in years past and weren’t as prevalent.

Adds Lovelace: “You’re starting to see more recycling or reusing of sites. The younger, environmentally savvy consumers would rather see you renovate or teardown and rebuild than build something new.”

Deschaine agrees that diversification and adaptability are the key ingredients to being successful in today’s market. “If they are staying in the retail sector, contractors need to be able to diversify due to various components such as environment and parking demographics.”

Shaver understands firsthand what it means to have to adapt to every situation. “The most challenging thing about the Gucci store was the millwork because it was done in Italy, as well as coordinating deliveries and storing everything onsite. It was challenging and rewarding all at the same time.”

Culkin says that to be successful in today’s market, contractors must be willing to listen to their customers. “The retail market is reinventing itself,” he says. “The standard way of thinking is not the best way to go. Contractors need to go back to what the customer is looking for, but the customer is trying to figure out this market as well. Contractors are changing to meet the consumers’ needs, and the consumers’ needs are constantly changing.” 

Cindy O’Hara is a contributing writer to Construction Executive. For more information, email cindy.ohara@yahoo.com.