Surging economy drives construction in Duluth
It turned out that 2014 was a good year to be sporting a hard hat in Duluth.
Building permits for $88.7 million worth of nonresidential construction were pulled in 2014 — about 4½ times more activity than the city saw the previous year.
“The economy has really been turning around with buildings like the Maurices tower going up and the DTA center coming out of the ground,” said Craig Olson, president the Duluth Building and Construction Trades Council.
Chris Eng, Duluth’s director of business and economic development, also pointed to other public and private projects, including a new airport parking ramp and numerous retail developments, such as the Kwik Trip gas stations that have been popping up all over town.
“A lot of the stuff that’s happening in the city of Duluth right now is just pure optimism,” Eng said. “People are excited about the future and the direction in which Duluth is heading. The fact that they’re starting to make investments in our city is great news for us, because over time the increase in commercial and industrial market values will actually lower the tax burden on residential property owners.”
Housing uptickIn all, 190 units were added to Duluth’s housing inventory in 2014. That’s 84 percent more than the 103 units built in 2013.
“I’m gratified to see that there’s an increase, and in 2015 I think we’ll see an even bigger increase,” said Eng, pointing to several large projects on the horizon.
Harbor Bay Real Estate Advisors plans to start work in April on a $36 million, 148-unit apartment building at the corner of 21st Avenue East and London Road, and the same developer also is laying plans to build housing on the site of the former Duluth Central High School, with work expected to begin in July, Eng said.
Meanwhile, developer Mark Lambert expects to wrap up work on his 60-unit Summit Ridge project in June and said he is pulling together a concept plan for more housing units and shops at his BlueStone development along Woodland Avenue.
Duluth hired Maxfield Research Inc. to analyze its housing needs for the future, and the firm projected last year that the city will need another 4,470 new housing units in the next six years. To meet that expected demand, the city would need to add an average of 745 new housing units in each of the next six years.
The 190 units that Duluth added to the mix in 2014 is far short of that, but Eng said things are moving in the right direction.
“We’re starting to see the fruit of our housing study and the housing summit pay off, but we know that there’s still a lot of work ahead of us,” Eng said.
The average cost per new unit of housing dropped more than a quarter from about $187,182 in 2013 to $137,682 in 2014.
Eng credits economies of scale for driving down the cost of some larger, multitenant developments.
While new construction gained momentum in Duluth last year, improvements to existing buildings tapered off a bit.
Building permits were pulled for nearly $62 million worth of building additions, alterations and repairs in 2014 — about one-third less than the $92.8 million Duluthians spent on such improvements the previous year.
The decline is somewhat of a positive sign in the eyes of Michelle Peterson, president of the Duluth Area Association of Realtors.
She said that when the economy looked shakier, “lots of people were staying in their old houses and fixing them up rather than buying new.”
While Duluthians spent less money remodeling last year, the number of local homes sold in 2014 actually dipped 4 percent — from 2,295 in 2013 to 2,202 in 2014.
Still, Peterson said she expects 2015 will bring more activity.
“With interest rates so low, we’re predicting this will be a strong year for real estate,” she said.
Demand for tradespeople has surged in the face of the recent building boom.
“It’s been a real wake-up call for the trades,” Olson said. “We’ve started reaching out to more high school kids and talking to them about all the opportunities in the trades.”
Olson said some people have put off planned retirements and others have come out of retirement to help meet demand for skilled workers.
But that’s a temporary solution at best, Olson said. He noted that about 35 percent of people working in the region’s trades are expected to retire within the next decade, and more skilled young workers trained through apprenticeship programs will be needed.
Eng also expressed concern, but said: “By the same token, it’s a great opportunity for our younger generations to look at the trades as a career, and there are some wonderful opportunities in the building trades right now.”
As activity slows in the Bakken oil fields of North Dakota, Eng said the Northland also may be able to lure skilled workers to construction jobs in and around Duluth.
Construction activity shows no sign of slowing down in 2015, Olson said.
“By all indications, after talking to architects and engineers, my barometer tells me 2015 is going to be even better,” he said.
Eng shares Olson’s bullish vision. He pointed to several large projects now in the works, including the renovation of the NorShor Theatre, a new production facility for Ikonics Corp. in western Duluth’s Atlas Industrial Park, a waterfront hotel slated for construction on the site of the former Lafarge cement terminal, and other hotels that continue to proliferate in the commercial corridor surrounding Miller Hill Mall.