Construction Market Forecast to Increase 11 Percent in 2010
October 19, 2009

When Robert Murray, vice president of economic affairs for McGraw Hill Construction, offered his annual construction forecast last Friday to attendees of McGraw Hill's annual Construction Outlook Conference, there was a great deal of bad news to report, mainly consisting of large drops in virtually all construction segments in 2009. But there were a few glimmers of hope including the fact that the level of construction starts in 2010 is expected to climb 11 percent to $466.2 billion, following the 25 percent decline predicted for 2009.

Source: Robert Murray, McGraw Hill Construction

"This is the end of that lengthy cycle," says Murray. "This year and next is the start of a new cycle."

"We are turning a corner," adds Murray who also notes that more optimism is being seen in the market in recent months.

"In January-February there was a pervasive sense of gloom, but that is changing," he says.

2009-2010 Forecast Highlights

That lengthy cycle has included significant drops in most areas of construction. Following are some highlights from Murray's forecast:

• The previous resilient institutional buildings market took a hit in 2009 as it is predicted to decrease 15 percent.
• A 25 percent decline in
  construction starts is forecast for this year, which Murray says is bigger than previously expected.
• "The commercial building market really got clobbered this year," says Murray who adds that segment is down approximately 55 percent.
• Healthcare facilities have posted a 36-percent drop thus far this year after an all time high in 2008.
• Airline terminal projects have posted a fairly large pickup in 2009. "There are some large projects that are moving the numbers up," says Murray.
• Multi-family housing has seen a 55 percent drop in 2009. Murray forecasts a modest increase in 2010.
• The retail segment has taken a huge hit in 2009, according to Murray, and another decline may come in 2010. However, he points out that this is causing some big box retailers to "scout out new locations."
• Murray points out that the hotel market has posted another steep decline in 2009 and the top list of commercial hotel projects has no Las Vegas projects on it showing just how much that market has declined. The list now includes smaller hotel projects such as Embassy Suites.
• The decline in construction of educational buildings was surprising to Murray who says everything was down in this segment except for research labs. The bright spot here is that school enrollments are increasing so he forecasts improvement in this market for 2010.
• "Government-related buildings are cushioning the overall decline," adds Murray.

An Unstable Credit Market

However, while the market may be on its way up, Murray says another huge obstacle for the industry may be looming.
"The big unknown and threat is commercial mortgages in 2010 and 2011," he says. "That could be the next financial crisis."

He says there are numerous instances of tight credit affecting large projects such as the Echelon in Las Vegas, the World Trade Center Towers 2 and 3 and the Chicago Spire, to name a few.

A Bright Spot--Stimulus Package

Murray says that $130 billion has been designated in the stimulus bill for construction related spending for 2009-2011. He says not much of the money has been spent yet but that should change in 2010.

"Our data shows the stimulus money is starting to come out," he says. "Money for energy-efficient upgrades really hasn't hit construction starts yet."

He adds that the institutional buildings segment shows the most benefit of the Stimulus Act thus far, which has included an increase in courthouse projects. He also says public works is a guaranteed area of growth in 2010 if the stimulus money comes through. If it does he forecasts a 13-percent increase.

"Overall, the market is stabilizing after some very steep drops," says Murray. "It is a cyclical business and the non-residential market has another year of entrenchment to go through."

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