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Texas Construction Boom: Arch-Con Growth Reflects Lone Star State’s Lead in US Commercial Real Estate Development

Michael Scheurich, CEO of Arch-Con Corp.

HOUSTON – (By Dale King, Realty News Report) — Texas led the nation in commercial real estate development in 2018, a trend that has created a great opportunity for Arch-Con Corporation, a construction firm focused on the Lone Star State.

A new report by NAIOP, the Commercial Real Estate Development Association, says Texas topped the nation in development activity for the second year in a row.

“We have grown alongside the entire industry as a whole over the past decade,” said Michael G. Scheurich, chief executive officer of Arch-Con, a large Houston construction company focusing on “office, industrial, retail, multifamily, hospitality, community, healthcare and corporate interiors.”

“Arch-Con has grown its revenue by 25-35 percent consistently since 2012,” he noted. “Our revenue was $26 million in 2009 and it will exceed $500 million in 2019.”

“We have grown from 25 employees to 175 employees over the past 10 years.”

The NAIOP report said the construction industry’s performance has been bolstered by strong consumer spending and increases in wages and job growth, as well as tax reductions enacted in December 2017 under the Tax Cuts and Jobs Act, which was pushed by the Trump administration.

Scheurich stated his company has definitely benefited from the Tax Cuts and Jobs Act measure. “Arch-Con is a C-corp, and has been the beneficiary of a reduced tax rate, from 35 percent to 21 percent. This has allowed the company to increase its working capital faster and allowed it to take on larger projects.”

The Arch-Con CEO offered his opinion of how the good news for Texas has spread to the Bayou City. “Just like Texas, Houston has seen a consistent increase in population over the past decade.  Even though we’ve had challenges in our key economic drivers (oil and gas, healthcare, etc.), the city has continued to prosper.”

“This is surprising to some—but, on the other hand, it is ‘proof’ for others that our city is now more diversified than it was in the 1980s,” Scheurich said. “Time will tell if our diversity can truly overcome the future downturns in energy.”

The energy industry is facing belt-tightening amid concerns that a global glut of oil is developing. The cutbacks – Halliburton and National Oilwell Varco both announced in July that layoffs were coming – could dent the Houston economy and real estate markets, and tamp down construction activity.

Arch-Con has a number of new projects in Texas, including a 14-story hotel for American Liberty Hospitality on the West Loop near Westheimer; an office building for T2V Properties in Las Colinas in Irving; a Sprouts grocery store in Sugar Land; the AC Hotel by Marriott in a 100-year-old building on Main Street in downtown Houston; and the 200,000-SF Shops at Chisholm Trail Ranch retail center in Fort Worth.

The Texas construction surge is seen in all sectors of commercial property and even in residential markets, as Texas is a national leader in multifamily and single-family building.        

The NAIOP report offers rankings in the following categories:

  • Warehouse/Flex (includes e-commerce distribution/fulfillment facilities): Texas ranks Number 1, above California and Florida.

  • Retail: Texas ranks Number 1, above Florida and California.

  • Office: Texas ranks Number 2, behind New York and above Virginia.

  • Industrial (includes manufacturing facilities): Texas ranks Number 2, behind Tennessee and above Florida.

Powered by top-level rankings, Texas created and supported 400,986 industry-related jobs and contributed $62.2 billion to the state’s economy in 2018, the most recent year for which data is available, says the report.

New development and ongoing operations of existing commercial real estate buildings in the United States – office, industrial, warehouse and retail – generated significant economic growth at the national level.

  • It created and supported 3 million American jobsin 2018 (a measure of both new and existing jobs), resulting in salaries and wages of $325.9 billion.

  • Development and ongoing operations contributed $1 trillion to U.S. GDP in 2018.

  • 532 million SF of office, retail, warehouse and industrial commenced construction in 2018, with capacity to house more than 1.5 million workers.

“Commercial real estate development’s contributions to the U.S. economy are significant. The industry’s growth is critical to creating new jobs, improving infrastructure and creating places to work, shop, live and play,” said Thomas Bisacquino, NAIOP president and CEO.

The NAIOP report offered that the U.S. economy grew 2.9 percent in 2018 for its best performance of the decade, up from 2.2 percent in 2017. This strong showing resulted from the Tax Cut bill’s fiscal stimulus, increased federal government spending, rising consumer spending, a stronger global economy, increased exports, continuing above-trend job growth and accelerating gains in personal earnings.

The report’s breakdown of non-residential construction follows:

  • Construction spending for manufacturing structures increased steadily over the 2011 to 2015 period with 2015 registering a one-year gain of 33.4 percent.

  • Fixed investment in manufacturing structures decreased 5.1 percent in 2016 and declined 15.2 percent in 2017. It is estimated to have declined for a third year in 2018, falling 7.8 percent. Projections for manufacturing investment show it reversing this pattern to gain 2.2 percent in 2019 [and is expected] to decline 1.7 percent in 2020 and rebound in 2021 by 4.1 percent.

Despite the economy’s top-notch performance in 2018, the report says, residential construction activity “dropped unexpectedly in the second half of the year. For the full year, residential housing starts underperformed beginning-of-the-year forecasts, gaining 4.2 percent rather than the expected 6.4 percent.”

The NAIOP report concludes:

“Beyond 2019 through 2023, the economy’s growth trajectory is currently projected to remain positive but at a below-trend rate of 1.65 percent.”

“Forecasts for the period beyond 2019 open the door to an increasing number of uncertainties, but for the short term, the positive forces appear sufficiently strong to drive this business cycle beyond 120 months (July 2019) to become the longest in U.S. history.”

The report was written by Stephen S. Fuller, Ph.D., Dwight Schar faculty chair, university professor and director of the Stephen S. Fuller Institute, Schar School of Policy and Government, George Mason University in Arlington, Va. The study uses information from the U.S. Census Bureau and Dodge Data & Analytics.

July 30, 2019 Realty News Report Copyright 2019

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