PCED Staff Note: This week’s post is part of a series on evaluating site selection factors from a local perspective titled, “Site Selection Factors”. The aim of the series is to outline the criteria used by companies to determine where they will build new facilities or expand existing ones. We will examine the top 10 factors as adapted from Area Development Magazine’s, “The Top Factor’s to Navigate the Location Maze”¹. Those factors, listed in order of priority, are as follows: Availability of Skilled Labor, Highway Accessibility, Quality of Life, Occupancy or Construction Costs, Available Buildings, Labor Costs, Corporate Tax Rate, Proximity to Major Markets, State and Local Incentives, Energy Availability and Costs. Guest bloggers will contribute each week from their area of expertise. Some topics may span multiple weeks.
A Cost-Friendly Place to Build
What’ll it cost me?
That’s a question on the mind of every project owner deciding whether, when and where to build. As consumers, which all of us are, isn’t cost fundamental to our purchasing decisions? Of course, it is. Whatever the bells and whistles, the pluses and minuses or the value proposition, it boils down to WICM—what’ll it cost me?
Compared to everyday consumers, however, project owners attempting to calculate construction costs must negotiate a more complex decision-making process. No neat price stickers or posted fee schedules here. Mapping construction costs requires them to get a firm grip on labor costs, material costs, local regulations and fees, and other factors which can vary widely from market to market and fluctuate wildly, even over the course of a single project.
Calculating accurately can lead to well-managed, (relatively) smooth-sailing projects. Miscalculations, however, can result in shaky site selection decisions and projects veering disastrously off-budget and off-schedule.
Person County has set its focus on attracting advanced manufacturing facilities.
Computer chip manufacturers, pharmaceutical plants, industrial biotech firms and similar advanced manufacturing companies will want to know what it will cost them to build in Person County.
Person County will need to understand its competitive strengths relative to construction costs, and how the county can leverage them.
Strength in the Numbers
Here’s the good news. The construction market is strong and trending upward. With few exceptions, all market sectors are healthy. Hospitality and higher education are especially vigorous. The North Carolina economy is performing solidly in a region—the Southeast—with one of the strongest construction activity pulses in the nation. A March 2017 update by the Federal Reserve Bank of Richmond reported that the construction-labor market grew 3.1 percent over the previous year—with the construction sector posting the state’s second-best year-to-year growth rate.
Here are the consequences. When construction is booming, prices tend to rise. Sometimes that makes developers pause, or even slam on the brakes.
Rising costs for labor and material top the list of headache-makers. The Southeast’s robust construction activity is causing major labor shortages in urban markets, where most work is concentrated. Plumbers, electricians, carpenters and other skilled workers are in high demand. It’s a boon for workers. They can choose the best-paying projects or even jump from project to project. To remain competitive, owners can feel pressured to increase pay—a cost which is passed along to end users.
Market confidence in long-term construction spending is also boosting material costs. And on the political front, talk of international trade tariffs looms as a factor that is difficult to assess. Commodities like steel and iron, and manufactured products like cabinets are among imports whose prices could be affected if tariffs are imposed.
Making the Grade
All things considered, the Southeast, including Person County, is in a relatively advantageous position. Rising costs notwithstanding, construction pricing in the region is about as inexpensive as anywhere in the country.
Person County is not an urban center where construction activity and skilled labor are concentrated. On the other hand, the county is not so remote as to rank low in site selection sex appeal. The county can benefit from its proximity to the Research Triangle. For sure, owners—and the specialty contractors required to build complex advanced manufacturing facilities—will take a hard look at the budget impact of travel and other logistics costs of doing business in this exurban environment.
But there are proactive measures that Person County and projects owners the county is targeting can take. Here are ways to sweeten the pot.
- Announce projects as early as possible. The idea is to pique the interest of qualified contractors and their trade partners long before planning the groundbreaking, giving them the opportunity to assess their interest, put it on their follow-up lists, and plan accordingly.
- Bring on qualified construction managers during the pre-design phases. Tapping their expertise during, say, design development supports realistic pricing and budgeting. Contractors can offer suggestions on materials and building systems that will minimize costs. For example, a construction manager’s recommendation that the owner consider selecting a less labor-intensive material could substantially lower labor costs. Contractors’ early involvement also means they will be more vested in the project.
- Select contractors with plenty of preconstruction experience. Their ability to provide accurate, detailed information using limited information will prove invaluable.
- Push subcontractors to use local labor.
Awareness of construction cost factors and their complexities is key to developing cost reduction strategies that will maximize Person County’s ability to hit the bull’s eye of its economic development pursuits.
¹ “The Top Factors to Navigate the Location Maze.” Area Development, Volume 51, Number 4, Q42016, pp. 24-36.
Mr. Michael Hughes, LEED AP BD+C
Vice President Preconstruction, JE Dunn Construction
This week’s post was submitted by Mr. Michael Hughes of JE Dunn Construction. Michael joined JE Dunn Construction in 2005 and currently serves as the Director of Preconstruction for the Charlotte office. He is an alumni of Vanderbilt University and holds a Masters in Design Construction Integration from Stanford University.