A turnaround in the housing market often sparks a revival in the retail industry. At this point, there is evidence that’s happening. However, both markets are still not back to pre-recession levels, which is limiting opportunities for electrical contracting firms nationwide.
“We are seeing a mixed picture,” says Kim Kennedy, manager of forecasting for McGraw-Hill Construction. “The housing market has posted a strong percentage increase, but it’s still at a depressed level of activity, and so is retail. The level of expansion and activity are not back to where they were before 2008 and 2009 when the market plunged.”
Robert Murray, vice president, economic affairs for McGraw-Hill Construction, agrees that while the retail market is coming up from a low level, from a historical standpoint, the volume is still weak. From 2005 to 2007, the United States experienced a high level of retail construction, and much of the excess space is still out there.
“The types of projects that we are seeing now are smaller in scale than what we had during the peak years,” he says. “We aren’t seeing the mega malls of the past decade, and the entertainment-based retailers that served as a driving force in the previous boom have not yet re-emerged.”
Instead, major retailers are expanding, and retail stores are becoming part of larger mixed-use projects. Murray is also seeing a modest upturn for Town Center type projects.
“I think right now there is still a very cautious approach to retail construction,” says Murray.
For example, according to McGraw-Hill Construction, the square footage in this market sector plunged from 312 million sq ft in 2005 to 81 million sq ft in 2010. For 2013, square footage is estimated to increase to 117 million sq ft (Chart), and by 2014, it is expected to rise to 137 million sq ft. While this is an improvement, it is still less than half the square footage of what was being produced during the peak period of the prior decade.
In addition, the amount of square footage per project has fluctuated over the past few years. The square footage peaked at 30,000 sq ft per project in 2007 and then dropped down to 18,000 sq ft in 2009. Over the last four years, it has ticked back up to 22,000 sq ft but is still well below the peak, Murray says.
During the last few years, remodeling and alteration work to existing facilities stayed steady, Kennedy says.
“While there was a steep decline in new construction, renovations took up the slack to some extent,” she says.
For example, large retailers like Wal-Mart held off on constructing or expanding new stores, instead investing in a lot of remodeling activity to improve existing stores. But now, as the housing market has begun to revive, construction of new stores has re-emerged, and the focus on remodeling has waned, she says.
Another trend affecting the retail construction market is online shopping, which is eating away at the edges of the brick and mortar retail facilities. According to the U.S. Commerce Department’s retail sales figures, electronic shopping sales increased by 16% while home furnishing, appliance dealers, and traditional department stores only experienced a 1.3% increase in sales. Third quarter 2013 e-commerce sales were up 17.5% from the same period a year earlier, while overall retail sales were up just 4.7% during the same period
Mike Kern, branch manager for Gaylor in Columbus, Ind., says the online shopping trend could be a contributing factor to the slow comeback of retail construction market and the subsequent halt to retailers’ expansion plans.
“We are not seeing a whole lot of work when it comes to retail,” says Kern, whose company employs about 1,000 electricians and has multiple branches across the country. “There is some, but at this point it’s minimal.”
Over the last few years, customers have called upon his company to rework certain areas of their stores rather than investing in a full store remodel. For example, Gaylor electricians recently reconfigured power drops, lighting, and point-of-sale areas for about 10 large retail stores. Overall, however, he says the retail portion of the commercial market has been relatively slow.
“Construction has been slow across the board,” he says. “When that happens, residential contractors start moving into the commercial market and going after the smaller retail stores. It’s been hard to compete with their low labor rates.”
While the retail market is showing signs of recovery, electrical contractors hope for the return of those high levels of activity they saw eight years ago. While that dream may go unfulfilled, store construction is increasing, and contractors should see a stronger market in the future.
Fischbach is a freelance writer based in Overland Park, Kan. She can be reached at [email protected].
