Recent study ranks Oregon 43rd in nation's top construction business climates

Even though Portland is experiencing the biggest building boom in the city's living memory, it ranked 43rd in a study of the nation's cities with top construction climates.

Density and zoning laws are pushing new office space developments out to the suburbs across the nation. It's cheaper to build outside central business districts these days, where there's simply more space (and more lenient, smaller-town policies). Not only is Portland ranked low in national terms, but the suburban city of Beaverton actually has more office space being built than the metro area.

Associated Builders and Contractors (ABC) released in November its annual study on "Building America: The Merit Shop Scorecard," which takes a look at how state policies influence the success or failure of a free enterprise-based environment for construction companies.PAMPLIN MEDIA GROUP: FILE PHOTO - The three-building Nike World Headquarters is currently under construction with a 2018 completion date.

The study ranked states based on project labor agreements in the merit scorecard — Oregon scored a C grade overall — with the categories of prevailing wage (D), the right to work (F), public-private partnerships (B), workforce development incentives (F), career and technical education (D) and a five-year average job growth rate from 2011-2016 (B).

The national averages are a B grade for project labor agreements, C for public-private partnerships, C for workforce development incentives, B for career and technical education and a C for job growth rates.

ABC, a national construction industry trade association, was established in 1950 and has 21,000 members across 70 chapters. The Merit Shop Scorecard was developed with input from ABC chapters and industry stakeholders across the nation, and is also updated with exclusive state construction unemployment rate estimates from in-house economists.

"ABC is committed to promoting free enterprise-based policies that will improve business climates and ensure a level playing field for all contractors," said ABC Vice President of Regulatory, Labor and State Affairs Ben Brubeck. "We believe that the Merit Shop Scorecard can help promote policies that will attract additional business investment and benefit state economies as a whole by providing valuable information for policymakers, contractors, construction users and other industry stakeholders while focusing on specific areas where strategic improvements can be made."

Oregon rankings

As for project labor agreements (PLA), the study found Oregon has no state policy, but local government entities have implemented PLA requirements. The prevailing wage here is $50,000. There are no workforce development incentives in Oregon that are not federally funded. As for careers, Oregon recognizes the Nonprofit National Center for Construction Education and Research (NCCER) as an approved curriculum for career and technical education (CTE) programs, and 49 percent of CTE high school graduates are placed in colleges or careers. The five-year average job growth rate from 2011-2016 is 5.5 percent.

The industry overview shows that in Oregon, private projects pay workers within 14 days of the invoice with the final payment seven days after completion of a project, and the public sector processes payments 30 days after the invoice is received with the final payment 30 days after completion of the project. In terms of subcontractors, the public sector must pay subs within 10 days of receiving the owner's payment, and in the private sector the prime must pay subs within seven days.

In Oregon, there is no law in place in terms of immigration and E-verification mandate.

The percentage of state GDP from nonresidential construction is 3.3 percent.

The incident rate in construction in Oregon, taken from 2013 numbers, is 4.3 percent.

As for Occupational Safety & Health Oversight (OSHA), the state plan covers private workplaces and state and local government workplaces.

The percentage of union membership in private construction is 15.9 percent.

Business facts that played into the study that include the effective real-estate tax rate, 1.02 percent in Oregon, the corporate income tax rate which is 7.6 percent, and capital spending as a share of total state spending equals 4.2 percent.

Portland's office submarket

Another study from CommercialCafé, "2018 Scheduled U.S. Office Completions," looked into what the construction pipeline will have to offer in 2018. PAMPLIN MEDIA GROUP: FILE PHOTO - Portland's largest block of office space coming online next year is the Field Office, 2030 N.W. 17th Ave., totaling 279,000 square feet.

CommercialCafé is a nationwide commercial real estate listings platform and part of Yardi Systems, a real estate investment and property management software platform. The study used Yardi's matrix data to analyze all primarily office projects with 50,000 square feet of space or more with completion dates scheduled for 2018.

Comparing national cities, top positions are held by New York City and San Francisco naturally, while Portland is ranked 29th — and Beaverton is ranked 16th.

Beaverton has plans to add a total of $1.6 million square feet of office space in 2018, including the three-building Nike World Headquarters complex that's under construction. It's fully owned and occupied by Nike.

Meanwhile in Portland, the metro's largest block of office space is in the Field Office, 2030 N.W. 17th Ave., totaling 279,000 square feet.

The key takeaways show that the new favorite destination for office construction has shifted to the suburbs, with large-scale construction driving development outside primary urban areas. Across the nation, a total of 74.6 million square feet of office space is scheduled for delivery in the top markets — of which 35 million square feet of space is in suburban areas, compared to 15 million square feet in central business districts.

The study said investors are shifting their focus toward the suburbs, where vacant land is still available and the potential for large-scale development is bigger. A comparable Nike example is Apple's new corporate headquarters, also currently under construction in Cupertino, California, west of San Jose.

"Apple would've had a hard time finding enough space within the San Jose or San Francisco CBDs, to fit its 2.9 million-square-foot campus," the study said. The Apple Park spaceship campus will be the largest office delivery of 2018.

The next two largest expected are in New York — Silverstein Properties' 3 World Trade Center, 175 Greenwich St., and 55 Hudson Yards at 550 W. 34th St. The Nike World Headquarters is ranked 17th largest office expected to come online next year, with 649,000 square feet.

Like here in the Silicon Forest, there is an overwhelming demand for quality office space in the Bay Area stemming from a surge of tech companies and startups setting up shop in the region, resulting in construction focused on suburban areas.

Portland is ranked the #9 suburban market for office development in 2018, with 1,217,000 square feet of office space in the pipeline.

The other top markets are the Bay Area (with 5,921,456 square feet of suburban office space in the pipeline), Dallas-Fort Worth, Austin, San Francisco, Washington D.C.-suburban Maryland, Denver, Boston, Seattle, and Atlanta at #10 (with 1,054,500 square feet of suburban office space in the pipeline).

The study named the top 50 destinations for office deliveries in 2018, and Portland is ranked #29. In terms of office square footage in the pipeline for 2018, Portland has 589,344. In terms of the number of buildings, it has five — compared to the #1 ranked New York, which has 15, and the #50 ranked Berkeley, which has one.

As for existing office space, Portland has 30,146,126 square feet of it, compared to New York's 465,624,888.

Lastly, what's in the 2018 pipeline versus the existing inventory: Portland's ratio is 2 percent, compared to New York's 1 percent and Berkeley's 27 percent.

By Jules Rogers
Reporter, The Business Tribune
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