Northwest Arkansas construction sector posts steady 2013 results

Home builders and others employed in the local construction industry can easily sum up 2013 with just two words — steady work.

Bentonville, Fayetteville, Springdale and Rogers issued new commercial and new residential permits valued at around $523 million in 2013. While total permit values dipped 15% from the $605 million recorded in 2012, the number of new single family dwellings rose during the year-over-year period.

In 2012, the total permits were buoyed higher because of $133.9 million in multifamily construction projects in Fayetteville. This segment activity declined to $25.13 million in 2013.

BUILDING PERMIT TALLY
Bentonville
2013: $176.78 million
2012: $171.48 million
2011: $131.10 million

Fayetteville
2013: $157.85 million
2012: $286.13 million
2011: $106.98 million

Rogers
2013: $109.61 million
2012: $87.87 million
2011: $58.11 million

Springdale
2013: $78.81 million
2012: $60.16 million
2011: $51.64 million

HOMEBUILDING
The four largest cities in the region issued more than 1,460 permits for new houses or duplexes last year, valued at $395.212 million. Residential activity has rebounded during the past three years as the once-excess supply of new and unoccupied homes has largely been absorbed. New residential permit values rose 25% from 2012 and they doubled from 2011.

While inclement weather pushed December permits and housing starts lower, the total construction employment for this metro area has averaged 8,900 workers since June, adding back around 1,000 jobs from the 2012 annual average, according to the federal Bureau of Labor Statistics.

Brent Hanby, co-owner of Encore Flooring and Building Supplies in Springdale, said everyone he knows in construction-related businesses were busy throughout 2013.

“Builders, tradesmen like plumbers and roofers, movers, lenders and sales folks have all been making hay while the sun is shining because there has been steady demand for new houses, (with) money spent on homestead renovations and upgrades on rentals,” Hanby said.

He attributes the steady work to the stronger overall job numbers reported in Northwest Arkansas and said he feels an energy that has been rekindled after several years in deep recovery.

“Nearly every month we see landlord property owners replacing flooring and making other upgrades in their rentals. They tell me they are raising rents because of growing demand,” Hanby said.

He said his firm has expanded to 35 employees in the past two years, and posted a 30% annual compound growth rate in 2013.

Rausch Coleman, the only nationally ranked homebuilder in the region, reported total sales were up some 9% in 2013. CEO Fred Rausch said the firm saw steady demand for new homes in all of its markets with Northwest Arkansas continuing to pick up steam throughout 2013. The Fort Smith market showed positive gains as well, while Oklahoma City, Tulsa and Kansas City are also performing better year-over-year, according to Raucsh. He expects more of the same in 2014 with some 500 new units built and sold among all of its markets.

“We are not overly exuberant in any market but we are staying busy and growing at a sustainable rate,” Rausch said.

By mid 2014, he expects to have new homes going up in southeast Fayetteville on 75 lots the firm picked up from a bank.

“We also are trying to close on a partially developed subdivision in Centerton with 110 lots,” he said.

HIGHER PRICES, INVENTORIES
The median sales price of new construction homes increased in all of the major cities between 2012 and 2013. The median new home price across the two county-region was $225,000 last year. The median price rose 4.9% from 2012, according to Paul Bynum, economist with MountData.com.

Bynum reports 924 new homes sales were recorded in 2013 in the regional Multiple Listing Service. New home sales rose from 793 in the prior year. Nearly 75%, or 684, of those new home sales were in Benton County, compared to 552 recorded during 2012.
There were 240 new home sales recorded in Washington County in 2013, one less than recorded in the prior year.

Bynum reports 370 new homes listed for sale in the MLS at the end of 2013, up 28% from the year-ago period. The largest builders across the region list their new homes in the MLS, but these listings do not typically include custom-home builds.

COMMERCIAL PROJECTS
The commercial building sector continues to lag the residential recovery, but two of the region’s largest cities reported more commercial activity in 2013, compared to 2012.

Springdale posted the biggest year-over-year permit gains with $28.97 million in new projects breaking ground in 2013. This included the $15.43 million Wal-Mart Supercenter under construction in west Springdale.

Rogers also posted an increase in commercial building with permit values rising 8.43% from the 2012 year. Several new restaurants and other retail venues were approved by the city during 2013 and the construction also began on the multimillion dollar Arkansas Music Pavilion near Pinnacle Promenade.

COMMERCIAL PERMIT VALUES (2013 compared to 2012)
Springdale – $28.97 million, up $7.67 million
Rogers – $28.93 million, up from $26.68 million
Fayetteville – $45.42 million, down from $79.53 million
Bentonville – $26.874 million, down from 42.92 million

2014 COMMERCIAL OUTLOOK
“We expect growth to continue in Northwest Arkansas in 2014, as job expansion improves. The local commercial sector is lagging behind the recovery pace we have seen in residential construction over the past two years,” said Kathy Deck, director for the Center for Business and Economic Research at the University of Arkansas.

Deck said private investment and public infrastructure will likely continue to lead the way in commercial building projects in 2014.

McGraw Hill’s 2014 outlook, predicts that U.S. construction starts for 2014 will rise 9% to $555.3 billion.

“We see 2014 as another year of measured expansion for the construction industry,” said Robert Murray, McGraw Hill Construction’s vice president of Economic Affairs.  “Against the backdrop of elevated uncertainty and federal spending cutbacks, the construction industry should still benefit from several positive factors going into 2014.”

He said job growth, while sluggish, is still taking place. Interest rates remain very low by historical standards, and in the near term the Federal Reserve is likely to take the necessary steps to keep them low. Murray added that the improving fiscal posture of states and localities will help to offset some of the negative impact from decreased federal funding.

McGraw Hill estimates commercial building will increase 17%, a slightly faster pace than the 15% gain estimated for 2013.

Warehouses and hotels will continue to lead the way, while stores and office buildings pick up the pace. The positives for commercial building are improving market fundamentals and more bank lending for commercial development. Next year’s activity in dollar terms will still be 28% below the 2007 peak.

Institutional building is predicted to edge up 2%, turning the corner after five years of decline. For the educational building category, colleges are revisiting capital expansion plans, and passage of recent construction bond measures in several states should help K-12 construction projects. Healthcare construction is expected to remain flat, given continued emphasis on cost containment.

Public works construction is expected to drop 5% nationally. But locally, the widening of Interstate 540, the Don Tyson interchange and the Fayetteville Flyover are three large road projects underway in Benton and Washington counties.

“The 2014 picture bears some similarity to what’s taking place during 2013, with single family housing providing much of the upward push; multifamily housing showing a slower yet still healthy rate of growth after four years of expansion, and commercial building gradually ascending from low levels,” said Murray.