Hard times are hitting Washington's commercial construction business as developers, builders and subcontractors slide into a depression after a massive boom in office space development.
Led by a 35 percent decline in new office buildings, commercial construction activity in metropolitan Washington has dropped 33 percent during the past year, according to statistics compiled by the Metropolitan Washington Council of Governments.
Office construction in the District has held up better than in the suburbs, as developers and builders complete projects that were planned and financed during the boom two to three years ago. But the industry is holding back on starting projects, carefully watching interest rates and the demand for office space, developers say.
The value of building permits issued for new offices in the Washington region dropped from $45 million in the first quarter of 1981 to about $30 million during the same period this year. (Data for the second quarter will not be available until September.)
New permits for office construction downtown, which make up the bulk of commercial building activity in the District, fell 8 percent from $13.9 million in last year's first quarter to $12.8 million in the opening three months of 1982.
The year-to-year first-quarter drop in construction jobs parallels the decline in building permits. In the area, construction employment fell by 12 percent--from 73,500 workers to 64,500--but was unchanged in the District at 11,300.
Philip Carr, vice president of Washington developer Oliver T. Carr Co., predicted that fewer office projects will be launched in the District next year. He said that his firm, which is the biggest in the District, is waiting to evaluate the economics of several projects this fall.
Carr said 41 office buildings are under construction in the District. The projects will be completed at varying times, ranging from this fall into 1984, providing a continuing, although shrinking, source of construction jobs.
Another 30 office buildings on developers' drawing boards could be started in the next 12 months if market conditions are "excellent," Carr said. But he added that, if the D.C. office rental market--which has a record high vacancy rate--or interest rates do not improve, only a few of those 30 projects are likely to be launched.
Developers started scaling back plans several months ago, Carr said. "A number of projects were supposed to start this year but didn't. The developers were concerned whether the rents they could get would cover the cost of their financing."
While developers are retrenching, builders and subcontractors, in turn, are feeling the effect.
"I think we would characterize this as a serious contraction," said A.S. McGaughan Jr., vice president of CEI Construction, which owns George Hyman Co. and Omni Construction Co.
McGaughan said Hyman and Omni have started one-third fewer office projects this year than a year ago. Executives of the firm are "concerned" but not yet "worried," he added.
Subcontractors have been hit even harder, according to industry officials. Jim Iverson, executive director of the Metropolitan Subcontractors Association, said 20 of his 350 member firms went out of business in the past year. Unless conditions improve soon, an additional 40 subcontractors will join them, he predicted.
Their woes recently were worsened by an influx of firms based outside Washington. "Business has been very seriously affected and impacted by outsiders," Iverson said grimly.
"The competition is fierce," he added, noting that the intense bidding has forced firms to cut their prices by between 20 and 30 percent to attract work.
Construction "prices today are cheaper than they were five years ago," said Richard Morauer, president of Morauer & Hartzell Inc., a Beaver Heights, Md., excavating subcontractor. "I don't think anybody's making any money. People are bidding on jobs just to try to make enough to get by."
Morauer said he is bidding for excavation contracts at prices between 30 and 40 percent below what he would charge to earn a normal profit. He has been forced to lay off 80 percent of his work force in the face of conditions he called the worst he's seen in 30 years in the excavation business.
Nevertheless, at least one subcontracting firm is prospering during this recession. Jerry King, vice president of Rockville-based Rentals Unlimited, said his business is up 20 percent over last year despite what he agrees to be a serious downturn in commercial construction.
"It's a personal opinion of mine that these times are necessary to weed out those that came in on the tide when things were going up," he said.