Texas Construction Boom: Arch-Con Drives Commercial Real Estate Growth
Michael Scheurich, CEO of Arch-Con Corp.
HOUSTON – (By Dale King, Realty News Report) — In 2018 Texas led the nation in commercial real estate development, a trend that has created significant opportunities for Arch-Con Corporation, a Houston-based construction company concentrating on projects across the Lone Star State.
A new report from NAIOP, the Commercial Real Estate Development Association, shows Texas topped national development activity for the second consecutive year.
“We have grown alongside the industry as a whole over the past decade,” said Michael G. Scheurich, chief executive officer of Arch-Con. The company focuses on office, industrial, retail, multifamily, hospitality, community, healthcare and corporate interiors.
Scheurich noted steady expansion: “Arch-Con has grown revenue by 25–35 percent consistently since 2012. Our revenue was $26 million in 2009 and will exceed $500 million in 2019.” He added that the company expanded from 25 employees to 175 over the past ten years.
The NAIOP report credits the construction industry’s strong performance to robust consumer spending, rising wages and job growth, and corporate tax reductions enacted in December 2017 under the Tax Cuts and Jobs Act.
Scheurich confirmed Arch-Con benefited from the tax change. “As a C-corp, Arch-Con saw its tax rate reduced from 35 percent to 21 percent. That improvement has allowed the company to increase working capital faster and pursue larger projects.”
On Houston’s resilience, Scheurich observed: “Like Texas overall, Houston has experienced consistent population growth over the past decade. Even with challenges in key sectors such as energy and healthcare, the city continues to prosper.” He added that Houston’s broader economic base today is far more diversified than in the 1980s, a factor that may help the region withstand future energy downturns.
The energy sector was tightening amid concerns about a potential global oil glut, and cutbacks by major service firms signaled potential downside risks for Houston’s economy, real estate markets and construction activity.
Arch-Con has several projects underway in Texas, including a 14-story hotel for American Liberty Hospitality near the West Loop and Westheimer; an office building for T2V Properties in Las Colinas, Irving; a Sprouts Farmers Market in Sugar Land; the AC Hotel by Marriott in a century-old Main Street building in downtown Houston; and the 200,000-square-foot Shops at Chisholm Trail Ranch retail center in Fort Worth.
Texas’ construction surge is evident across commercial sectors and in residential markets—Texas ranks among the national leaders in both multifamily and single-family building.
The NAIOP report provides state rankings across several property categories:
Warehouse/Flex (including e-commerce distribution and fulfillment facilities): Texas ranks Number 1, ahead of California and Florida.
Retail: Texas ranks Number 1, ahead of Florida and California.
Office: Texas ranks Number 2, behind New York and ahead of Virginia.
Industrial (including manufacturing facilities): Texas ranks Number 2, behind Tennessee and ahead of Florida.
Fueled by top rankings, Texas created and supported 400,986 industry-related jobs and contributed $62.2 billion to the state’s economy in 2018, the latest year covered in the report.
At the national level, development and ongoing operations of commercial real estate—office, industrial, warehouse and retail—generated substantial economic activity in 2018:
Commercial real estate activity created and supported roughly 3 million American jobs in 2018, producing $325.9 billion in salaries and wages.
Development and operations contributed about $1 trillion to U.S. GDP that year.
A total of 532 million square feet of office, retail, warehouse and industrial space commenced construction in 2018, providing capacity for more than 1.5 million workers.
“Commercial real estate development’s contributions to the U.S. economy are significant,” said Thomas Bisacquino, NAIOP president and CEO. “The industry’s growth is critical to creating new jobs, improving infrastructure and providing places to work, shop, live and play.”
The report notes the U.S. economy expanded by 2.9 percent in 2018, the strongest annual growth of the decade to that point, up from 2.2 percent in 2017. Factors driving that performance included fiscal stimulus from the tax changes, increased federal spending, higher consumer spending, stronger global demand and continued job growth with rising personal earnings.
The report’s non-residential construction summary highlights trends in manufacturing-related investment. Construction spending for manufacturing structures rose steadily from 2011 through 2015, with a notable one-year gain of 33.4 percent in 2015. Fixed investment in manufacturing structures then fell 5.1 percent in 2016 and 15.2 percent in 2017, with an estimated 7.8 percent decline in 2018. Projections indicated a modest rebound of 2.2 percent in 2019, a potential 1.7 percent decline in 2020, and a stronger recovery of 4.1 percent in 2021.
Despite strong overall economic performance in 2018, the NAIOP study observed that residential construction slowed unexpectedly in the year’s second half. For the full year, housing starts increased 4.2 percent—below earlier forecasts of 6.4 percent.
The report concluded that, beyond 2019 and through 2023, economic growth was projected to remain positive but at a below-trend pace of roughly 1.65 percent. While forecasts beyond 2019 introduced growing uncertainties, the report suggested near-term fundamentals were strong enough to potentially extend the business cycle beyond 120 months (July 2019), which would make it the longest in U.S. history.
The study was prepared by Stephen S. Fuller, Ph.D., Dwight Schar faculty chair, university professor and director of the Stephen S. Fuller Institute at the Schar School of Policy and Government, George Mason University, using data from the U.S. Census Bureau and Dodge Data & Analytics.
