Total new construction is expected to increase nearly 10 percent in dollar volume in the Middle Atlantic region during 1980, slightly less than the expected increase of 12 percent in costs.
That dollar-volume increase is larger than members of the Associated General Contractors of America have projected in a national survey that showed dollar volume likely to increase 5 1/2 percent over the total $222 billion in major construction work done in 1979. But the AGC pointed out that the likely inflation rate increase in 1980 will result in a net decrease of 6 1/2 percent in the construction market this year across the nation.
On an individual basis, however, several major general construction firms have bullish construction forecasts for this area because they already have a s trong protfolio of current and new contracts. "Our business here and elsewhere looks as strong as ever," said A. James Clark, head of the giant George Hyman Construction Co. based here.
The cost of construction lending has risen sharply in recent months. Construction loans generally are tied to the prime rate that now is about 15 percent, with building borrowers paying one or 2 percentage points over prime.
While new building construction is strong in this area as the result of projects under way or planned for starts early next year, a mild downturn in new highway building is predicted. Also, general contractors in this area recognize that the level of Metro rapid transit construction is tapering off.
In residential construction, where the building pace has been strong for three years, there was a slight downturn in 1979, and that trend is expected to continue more markedly this year. Overall, new housing starts are expected to decline 20 percent in this area in 1980 because of high interest rates and fears of overbuilding in a market that faced buyer resistance in the second half of 1979.
Nonetheless, prospects for midtown construction and projects in some expanding suburban areas are expected to continue at a vital pace. In the District, there has been a strong market for new office space despite rising land, leasing and operating costs.
An estimated $400 million of center city construction either is under way or planned within six blocks of the new convention center that is expected to be started this spring. Peter Seier of Julien S. Studley Inc. said that 8 million square feet of new office building construction for the private market is projected for downtown in the next four years. He added that a loosening of the money market could, increase that total by one million square feet.
Several large buildings are started or planned for the Crystal City area, and half a dozen are under way and planned in Tysons Corner, rapidly emerging as the downtown of Northern Virginia. More than one million square feet of new office building space are under way at three locations around 15th and L streets NW, and Donohoe Construction has started the 700,000-square-foot Federal Center Plaza at 500 C St. SW.
Robert H. Smith, head of a firm that is concentrating its new development in Crystal City and Skyline at Baileys Crossroads, mirrored the consensus in observing that demand for new space is strong but that some new projects may be delayed if long-term borrowing rates remain the the 11 1/2 percent to 1i percent range. He cited building development as a high-risk business that now needs long-term financing under 11 percent and short-term construction financing based on a maximum 12 percent prime rate.
Generally construction costs are rising at the rate of 12 percent annually, but that figure may soften if there is a construction downturn later in 1980. Hard costs of new construction now are in the range of $50 to $55 a square foot, and land costs per square foot of building area vary from $5 a foot in suburban area to $35 a square foot in prime downtown locations.
Developer-economist Robert Gladstone recently pinpointed rapidly increasing land costs as a major determinant in undertaking new projects. One result has been the trend to erect more intown buildings east of 15th Street NW, but that surge recently has escalated asking prices for land sites that are considered ripe for redevelopment.
John C. Broderick, an executive with the Leo Daly firm and current president of the Washington Building Congress, said he senses no decline in new construction interest here. Richard Caruso of Omni Construction said that many large projects are in the planning stage in both Northern Virginia and nearby Maryland. But he cautioned that actual starts will depend on the money market.
Third-generation contractor James G. Davis said that he's bullish because his firm has more work than ever, including a new national headquarters building for the Amalgamated Transit Union at Wisconsin and Garrison streets.
While area prospects for new construction are regarded generally as strong in 1980 because of projects under way or ready to be started, there is no mistaking the concern that a relatively major recession coupled with high interest rates could take some of the bloom off the construction rose here before Jan. 1, 1981.