As Home Construction Edges Up, Commercial Building Continues Decline, Forecaster Says
June 25, 2010

Source: McGraw-Hill Construction

It’s no secret that the economy is far from booming and Robert Murray, vice president of economic affairs of McGraw-Hill Construction, shared that the economy and the construction industry remains in a depressed state during yesterday’s 2010 Outlook for Construction Activity Midyear Update.

Murray said this past year was the “toughest for the construction industry, with a 25-percent drop.”

With a 21-percent decline in 2009, Murray said that construction for single family housing has reached bottom and now is edging up. This year has seen a 28-percent increase in housing starts. Multi-family housing, too, is increasing slightly, with a 7-percent increase in construction starts in 2010.

However, Murray reported that “commercial building is in the process of a three and potentially four year decline.”

Source: McGraw-Hill Construction

The exception to the across-the-board declines seen in commercial construction has been government facilities. The Stimulus Act granted $5.6 billion for construction of GSA federal building, $4.2 billion for Department of Defense restoration and modernization of facilities, $1.3 billion for veteran hospital upgrades and $4 billion for the Department of Housing and Urban Development. In a telling example, Murray noted that among the top ten office starts in the last year, the largest is the US Army Washington Headquarters Service in Alexandria, Va., costing $922 million; also on the list is the U.S. Coast Guard Headquarters and a Pentagon renovation.

Murray noted that of the $5.6 billion spent in commercial construction starts between March 2009 and April 2010, the majority of these have been government buildings, leading with 28 percent, and transportation terminals and apartment construction both making up 12-percent each.

Construction for public buildings is expected to grow, according to Murray, with courthouses experiencing a 26-percent increase and detention facilities experiencing a 5-percent increase.

Source: McGraw-Hill Construction

Despite reaching a new high in 2008, construction of healthcare buildings declined by 31 percent (millions of square feet) for clinics and nursing homes and 46 percent for hospitals in 2009. Murray shows that for 2010 that segment will begin to creep upward again.

Murray also noted that as education cuts have been implemented in more than states, decreased continue in the construction of school facilities. Overall, colleges and university construction have experienced a 13-percent decrease in millions of square feet and elementary through high school construction combined experienced a 55-percent decrease.

This impact of slowing retail sales continues to be shown in reduced store openings and store closings although, Murray noted, store renovations have seen a smaller decline. For 2010, there’s been a 6-percent decrease in millions of square feet in retail construction.

Source: McGraw-Hill Construction

Construction of hotels also plunged in 2009, down 65 percent. The weak economy reduced business travel, which lead to unfrequented hotels and casinos. The decrease continues in 2010, 17 percent.

Office construction experienced downturn acceleration in 2009 with a 55-percent decrease; an 8-percent decrease has been seen so far in 2010. Murray attributed the decrease to tight credit conditions, causing more projects to be deferred and deteriorating rents and vacancies. There have been longer term prospects proposed for improvement, but these will take several years to implement.

Murray predicted that a possible recovery might take place at the end of the year, but the real question is whether a “double-dip” recession with be experienced. He said the recovery is emerging and predicts a U-shaped recovery.

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