in Store for '08? Forecasters Say A Pretty Good Year
What can the construction industry expect for 2008? Another good
year for nonresidential, although not as good as 2007, say Ken Simonson,
chief economist for the Associated General Contractors of America;
John Cross, vice president of the American Institute of Steel Construction;
and Daryl Delano, principal and chief economist with Delano Data
Insights. The forecasters discussed what's in store for next year's
construction market during a recent webinar. The forecasters agreed
that nonresidential will continue to stay positive and, although
there will likely continue to be a declining residential market,
it will be a less severe decline than that of 2007. But just how
much change can we expect? That's a figure on which the forecasters
and economists could not agree. Simonson said he anticipated between
3 and 7 percent growth; Delano's and Cross's predictions each fall
on the high and low end of that range.
"Coming off 12.3 percent growth in 2006 and what looks to be about
14.5 percent in 2007, I would think we'd be about half that [on
the high end] in 2008," Delano said.
"And I'd say on the lower end, looking at a square footage basis,
not dollar basis, it'd be in the 2 to 3 percent range," Cross said.
The fact that this year saw declining as well as positive nonresidential
sectors might be one reason it is difficult to pinpoint a specific
growth percentage for 2008. This year, 15 of the Census Bureau's
16 nonresidential categories reported positive growth before adjustments
for cost increases. The only one down was religious structures.
Simonson said part of the reason that segment was down can be contributed
to the slow residential market because "most of that [type of work-churches,
temples, etc.] happens after a new neighborhood is constructed."
While nonresidential will stay positive in 2008, it will be a better
year for some sectors than others. Sectors expected to stay strong
are hospitals and higher education, while lodging/hotel and office
space will see more of a decline.
"In 2008 the commercial sector [hotels/lodging] will be impacted
by the slowdown in consumer spending," Delano said.
Simonson also predicted a slowdown in school and other local public
government projects that will likely be hurt by the drop in real
estate property tax receipts. "But quite a few markets will remain
strong and counterbalance [that] decline," he said.
One specific segment likely to continue growing is the energy/power
sector, which has been in a building boom that's just starting to
"We see several years of growth in this type of market … power
plants are adding capacity as well as environmental retrofits,"
This is also a segment expected to thrive for some time to come.
"We're in a scramble to have enough energy lines to deliver [power]
to where the customers are," Simonson said. "We've had six years
of economic growth and with that a demand for electricity that means
it will be hard to avoid blackouts and brownouts."
The construction industry may also see tightening in credit availability
for commercial projects in 2008.
"I don't think there are many, but there might be some projects
that have been canceled or put on hold because of concerns about
credit availability," Delano said. "I think the commercial market
did benefit from the fact that there was very easy money available
for a long time and there were some projects, probably in the planning
stages, that at this point are probably not going to go forward
until there is more confidence in the credit availability and the
quality of credit in the system. I think the major issues facing
the commercial market … are not really about credit availability,
but more the fact that there are certain sub sectors of [commercial
construction] that do have a relationship to overall residential
construction and the overall strength of the economy to the extent
that I think most people will agree the economy is just going to
skirt a recession over the next six to nine months."
The future of green building was also discussed, and the forecasters
agreed that while it may have started out as somewhat of a marketing
tool, it's evolved into something the industry can definitely expect
to see grow, especially as more governments require and ask for
"It's mainstream so the premium you pay [for green products] has
gone down," Simonson said. "There's also more of a push from the
government at all levels. That will help drive the materials chosen,
but it won't make much difference in the total volume of construction."
Cross agreed, green building is here to stay.
"There's a real perspective change taking place, [in that] the
view of what the project costs through its entire life is being
taken intuitively and that should help construction overall," Cross
The increasing cost of oil and its impact on the construction
industry was another discussion point.
"I think oil prices are insidious because they show up in so many
ways," Simonson said. "Many [contractors] have no alternatives but
to use diesel fuel." He explained that for companies using construction
vehicles there is no flexibility; they have to use diesel fuel.
"Diesel fuel also shows up as a surcharge on deliveries. Beyond
that you have many materials that use energy, so it shows up in
many forms. There's no good way contractors can avoid energy price
shocks," Simonson said.
Employment, labor issues and wage pressures will also continue
to be an issue for construction companies in 2008.
Cross said expect to see labor shortages in the construction field,
and that that increasing the level of automation could help companies
become more productive.
Looking at the glazing industry specifically, Simonson said the
curtainwall arena is one area that may feel wage pressure.
"Very few companies can put up a high-rise curtainwall. It's an
area you may see extra expense," Simonson said.
Overall construction expectations for 2008: Nonresidential will
stay relatively strong; it will take time, though to
re-establish the residential market. Forecasters predict home sales
to be up by next spring, but starts will not be up till late next
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