 
2011 May Show First Signs of Improvement
in Construction Starts, Forecaster Says
November 2, 2010
Robert Murray, vice president of economic affairs for McGraw Hill,
closed the McGraw Hill Construction Outlook Executive Conference
on October 29 with these remarks: "As we meet again next year, I
hope we'll be able say, yes, an expansion is close at hand."
As one might infer from these remarks, it's become clear that,
for the nonresidential construction industry, 2010 was not that
year.
Whether or not 2011 will be the year of expansion seems rather
uncertain. For 2011, single-family housing is predicted to see a
25-percent increase in new construction starts, and nonresidential
is expected to see an 8-percent increase, even factoring in the
dour situation for institutional buildings (a 2-percent decline
is predicted in 2011). Still, there seems to be a large number of
"ifs" between now and this time next year.
A Look Back
Rather than greeting his audience with "what a difference a year
makes" Murray found himself looking at last
year's forecast and asking "what happened?"
That isn't to say last year's predictions weren't correct-the predicted
declines were simply much steeper than expected. Last year, Murray
projected a 4-percent decline for commercial buildings; in actuality
that became a 17-percent decline. "Institutional building also has
shown a greater loss of momentum than expected," he noted. Rather
than the expected marginal gains, this segment saw a 7-percent decline
in starts, with a further 1-percent decline projected for 2011.
In other words, instead of moderate improvement in new construction
starts for 2010, "we're looking for, at best, stability and predicting,
I think, a 2-percent decline," Murray said. "Essentially we're talking
about activity more or less flattening out."
Murray did try to offer his audience a "ray of hope." He noted
that commercial building is estimated to be down in 2010 only 17
percent, compared to a 43-percent decrease in starts for 2009. "So
the slope of descent is easing," he said, "and if you're grasping
for any rays of hope I think this could be a ray of hope right there."
Looking at these predictions gone wrong, 2011 is coming in with
its share of uncertainty. The economy is still facing headwinds,
Murray said, "And there is still the risk of a double-dip recession
taking place." In addition, "If you look at spending and employment,
the downturn is still underway. Looking at [construction] starts,
it's a little more indeterminate whether we've leveled out and are
heading up."
Murray offered some forecasts for several segments:
- Multi-family housing: This segment was one of the pleasant
surprises of 2010, Murray noted. Last year he had predicted a
slight increase of 5 percent, which became a 9 percent increase
in actuality. That segment is expected to see further growth in
the area of 24 percent in 2011.
- Stores: Murray expects a nearly 18-percent decrease in
2010, followed by a 19-percent increase in square feet started
in 2011. Rather than starting construction on new stores, Murray
said, "Some of the more financially viable retail chains are engaged
in some renewal of formats in order to be competitive."
- Hotels: While Murray forecasted an 11-percent increase
to 20 million square feet in 2011, he commented, "20 million square
feet for this category is still pretty paltry."
- Offices: Following a 28-percent decline in office building
construction in 2010, Murray predicts a 13-percent increase in
2011 to 59 million square feet. "The stage is being set for some
resumption of the office building market," Murray said, pointing
to a few early signs. According to Murray, a number of large corporations
are beginning to post gains in their earnings, and if those companies
want to continue growing some investments in buildings, and people,
will be necessary. He also pointed to expectations that office
employment will start to pick up in 2011 or 2012."
- Institutional: Overall that category saw a 17-percent
decrease in construction starts in 2010, with a predicted 2-percent
decline in 2011. "Schools essentially have lost momentum," Murray
said. "This year we're looking at an 18-percent decline and it's
going to continue in our estimate in 2011." Fortunately, he added,
"The college and university segment has not seen as steep a drop
as has K through 12." Health care was flat last year at 68 million
square feet in starts, and Murray predicted a modest pickup in
2011 of 6 percent.
Overall, nonresidential construction is predicted to have an 18-percent
decrease in construction starts in 2010, followed by an 8-percent
increase in 2011
The good news is that increases in commercial construction are
in sight. "Personally, I think commercial building could pop in
a positive way in 2012, 2013," Murray said. To get to that point,
he added employment growth must strengthen and banks must start
lending.
The bad news? There's a lot of uncertainty regarding the long year
ahead.
Construction Starts
(in millions of square feet)
|
2009 Actual
|
2010 Preliminary
|
2011 Forecast
|
% Change 2010 to 2011
|
Single-family housing |
950
|
988
|
1,230
|
+24
|
Multi-family housing |
157
|
162
|
200
|
+23
|
Total Residential |
1,107
|
1,150
|
1,430
|
+24
|
Stores and shopping centers |
97
|
80
|
95
|
+19
|
Office buildings |
72
|
52
|
59
|
+13
|
Hotels and motels |
28
|
18
|
20
|
+11
|
Other commercial buildings |
131
|
110
|
138
|
+25
|
Manufacturing buildings |
37
|
38
|
42
|
+11
|
Total commercial and manufacturing |
770
|
633
|
683
|
+8
|
Educational buildings |
174
|
142
|
133
|
-6
|
Healthcare facilities |
68
|
68
|
72
|
+6
|
Other institutional buildings |
163
|
125
|
124
|
-1
|
Total institutional and other |
405
|
335
|
329
|
-2
|
Total nonresidential |
770
|
633
|
683
|
+8
|
Source: McGraw-Hill Construction
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