Optimists outpace pessimists in construction/real estate survey

REGION – Optimists seemed to barely edge out pessimists in a new construction and real estate survey, with a plurality of respondents from those sectors expecting better revenues in 2008 than in 2007.

But whatever their outlook, respondents appeared to adopt a wait-and-see posture for 2008 and continue to be cautious about hiring, according to a recent Traverse City Business News survey.

The online survey was conducted between Feb. 14 and Feb. 24. Roughly two-thirds of the 284 respondents are directly or indirectly involved in construction or real estate.

The greatest sign of optimism: About 48 percent of respondents answering a question about revenue trends expect a better year in 2008. In return, 32 percent believe they will stay at current levels, and 20 percent expect to see declines.

The real estate brokerages, general contractors, subcontractors and other companies in the survey are feeling their way through the current tough economic conditions. They recognize that there are numerous obstacles, including rising material and gasoline costs, in their way.

But they aren't writing off their prospects for the future. They are gauging the upside of the current real estate picture (in the form of lower prices), looking ahead to low-emission, energy-saving construction methods and working hard at staying abreast of trends. Staff training is an important strategy for dealing with a changing market.

The respondents evidently expect to achieve their revenue gains while bucking sluggish economic trends. Nearly 50 percent of all respondents to the survey say the real estate and construction downturn is likely to continue through 2008, while about 44 percent believe those segments will start pulling out of their slump this year.

People within the real estate and construction industry, however, are more optimistic than those outside it. About 48 percent of those firms thought the market would begin rebounding this year. A little more than 47 percent said the slump would continue into 2009.

Among all firms responding to the survey, just 44 percent saw an early rebound, while 49 percent saw the slowdown extending into next year.

Compared to the business community as a whole, real estate and construction firms also are more likely to believe that a tough economy doesn't affect all real estate and construction companies the same. Instead, it "shakes out" the lower quality providers.

They also aren't inclined to lay their problems at the doorstep of the Detroit auto industry, Lansing or Washington. Instead, they think that the course of the regional – not the national or state – economy will mostly determine their fortunes.

Some other conclusions drawn from the survey:

– Environmentally friendly approaches seem to be taking hold in the region, with more than 70 percent saying "green" construction is "extremely," "very" or "somewhat" important. Many firms plan training in these areas.

– Over the next three years, respondents see the top three residential growth areas as Long Lake, Acme and Blair townships. Within Traverse City, the Cass/Woodmere district, downtown, and Garfield Road south of Hammond rank high.

– Acme and Blair townships, along with Traverse City's Front Street corridor and the Grand Traverse Commons, are seen as the top commercial growth areas in the near future.

– The Bank of Northern Michigan ranks as the best-looking commercial building in Traverse City, followed by the Hagerty Building and Radio Centre.

While more than 28 percent of construction and real estate firms said they plan to add jobs over the next year, nearly two-thirds said they are not sure about their employment plans. And nearly eight percent expect to cut back on staff.

Not surprisingly, a substantial percentage of respondents at the front end of the construction/development cycle expect to cut employment in 2008. About 43 percent of developers plan to cut back, as do about 38 percent of real estate brokers.

That caution is perhaps natural for companies coming off a difficult year. About 45 percent of real estate and construction companies saw revenue declines in 2007, while less than 26 percent saw increases. The situation of nearly 30 percent remained roughly the same.

About half of construction and real estate firms have about as many employees as they had in 2006. But many firms have lost jobs in the last two years. The percentage cutting back was nearly 28 percent of residentially-oriented firms and more than 30 percent of firms focusing on commercial and governmental projects.

And about 22 percent of building and real estate companies that are commercially-oriented expect to cut back on jobs next year.

The respondents are recognizing the realities of the commercial and residential real estate environment in their personal lives, too. A full 30 percent of the respondents are trying to sell their own homes or other property right now, and those properties have been on the market an average of nine months.

Price-cutting is their most likely strategy for promoting the sale, followed by an increase in advertising, according to the survey.

But the respondents evidently recognize bargains when they see them as well. A full 85 percent of respondents from the construction and real estate industry say it's a good time to buy property in northern Michigan. Waterfront property on Grand Traverse Bay ranks at the top of respondents' lists.

More than two-thirds of respondents say they plan to build, renovate or buy a home in the next 12 months – a wellspring of aspiration that has always been part of the northern Michigan economy for decades. At the same time, nearly 30 percent of people in the real estate sector indicated they are trying to sell land. BN