Monday, April 2, 2012

Building Activity Rebounds in Bay State

Construction in the area rebounds after years of anemic activity. Higher education and health care projects are expected to keep Bay State contractors busy in 2012. Construction activity is expected to rebound to the highest levels since the recession.

The education and health caresectors are expected to be the top sources of construction activity again in 2012, said Mary Gately, director of market services for Associated General Contractors of Massachusetts.

With office and retail construction at a near-standstill in recent years, the construction industry has fallen back on public sector jobs as a cushion during the economic downturn.

Partly because of public sector work, Massachusetts construction companies are the nation’s most optimistic for the second straight year, according to a survey of members by Associated General Contractors of America.

The survey released this week found 58 percent of Bay State respondents expect business to grow in 2012. The state had the survey’s highest rates of optimism about public building projects, as well as construction in the retail, warehouse and lodging sectors.

Industry figures see potential for health care, life sciences and multi-family housing to help lead a rebound in 2012 and ensuing years.

Lee Kennedy Co. of Quincy is on a pace for $200 million in construction this year, twice its billings in 2011. The company is working on such high-profile projects as the $42-million Edward M. Kennedy Institute in Dorchester, Berklee College of Music’s new $70-million mixed-use building in Back Bay and a $30-million, 130-room Marriott Residence Inn in South Boston’s Seaport District.

Higher education accounts for 40 percent of the company’s business this year, CEO Lee Kennedy said. “For a long while, it’s been public higher education that’s been carrying the day. Now, recently, private higher-ed is starting to gain momentum,” Kennedy said.

About five million square feet of commercial development is being built in Greater Boston this year, according to research from commercial real estate brokerage Jones Lang LaSalle.

The state’s biotech industry, long held up as a prime economic catalyst, will be in the thick of building projects in 2012. Bay State biotech companies received $1 billion in venture capital funding in 2011, helping fuel expansions, said Peter Abair, director of economic development for the Massachusetts Biotechnology Council.

Vertex Pharmaceuticals’ new 1.1-million-square-foot headquarters in South Boston is the highest-profile project among several major projects. Biogen Idec is building two structures totaling 500,000 square feet as it moves lab and corporate space from Weston to Cambridge.

In a sign of confidence in the market’s future, Skanska USA is building a 100,000-square-foot lab space in Cambridge’s Kendall Square on speculation. The flurry of activity is the industry’s busiest since the middle of the last decade, Abair said.

Quincy-based J. Calnan & Associates, a construction management firm, expects its 2012 business to be steady or slightly above that of last year, President Jim Cahill said.

The company is counting on life science and technology companies for many of its nearly 30 projects this year. Calnan recently oversaw the build-out of new headquarter space for Joule Unlimited, a biofuels start-up that moved from Cambridge to Bedford. “While people aren’t expanding necessarily, that’s still a good market to be in,” Cahill said.

Construction starts in Massachusetts increased 24 percent in 2011 compared with 2010, according to Reed Construction Data.

Bernard Markstein, Reed’s chief economist, said the region’s activity should continue to grow this year. “Where Boston has a real advantage is health care,” he said. “Boston is known as a leader there, and the needs continue to grow there.”

Ownership changes in the health care sector could spur more work for contractors as deep-pocketed investors acquire local hospitals.

Steward Health Care, which is backed by Cerberus Capital Management, acquired Quincy Medical Center last year and plans to spend nearly $31 million to remodel the hospital and install new equipment.

Public school building construction projects continue to be a major source of work, as they had been during the recession.

The Massachusetts School Building Assistance Fund is contributing to 23 projects that will be completed this year, at a total cost of $802 million, spokesman Matt Donovan said.

Projects scheduled for groundbreaking this year include a $61-million middle school in Hingham and a $101-million high school in Marshfield.

Multi-family housing is another potential growth area, Lee Kennedy said. Apartment construction is rebounding in Boston, as home ownership declines and more people join the rental market.

AvalonBay Communities broke ground last year on the 220-unit Avalon Cohasset apartment complex. The project had been delayed for years because of permitting battles and the housing downturn. Condo projects are on the drawing board in downtown Boston for the first time since the recession, which Kennedy described as a reaction to rising rental rates.

Kenneth Simonson, chief economist for Associated General Contractors of America, has predicted that it won’t be until 2015 that construction levels recover to pre-recession levels.

But Massachusetts has fared better than most states because public sector projects, particularly at the state universities, helped pick up the slack during most of the recession, Gately said. As the industry looks ahead, the question is whether the private sector can sustain the momentum.