Multifamily Housing, Manufacturing Plants Present Only Bright Spots in an Otherwise Bleak Dodge Construction Forecast
October 24, 2011

Attendees network during the 73rd Outlook 2012 Executive Conference at the Omni Shoreham Hotel in Washington D.C. Nearly 350 people attended the conference.
The risk of a second recession has grown from less than 20 percent at the start of 2011 to about 40 percent in September 2011. Keeping that in mind, Robert Murray, vice president of economic affairs for McGraw-Hill Construction (MHC), presented two scenarios: a “baseline” forecast and a “recession” forecast. Murray made his presentation at MHC’s Outlook 2012 Executive Conference in Washington, D.C., on October 19.

“New construction starts for 2012 will be $412 billion, essentially flat with 2011,” Murray said. However, per his recession forecast, total construction starts would decline 7 percent in 2012. While the top-line numbers are not expected to change, there will be some variation within the major sectors next year, he said.

Murray predicted commercial buildings will grow 8 percent per baseline forecast, but will be down 6 percent per recession forecast. Store construction peaked in 2007, then fell 75 percent over the next four years, Murray said. “Derived demand from housing market definitely true on upside of cycle [is] now true on the downside of the cycle,” said he added. “Slow retail sales, reduced store openings and more store closings--such as [the closing of the] Borders book chain in 2011–are impacting the numbers. [However,] extreme discounters, such as Family Dollar and Dollar General, are still expanding.”

Certain companies, such as Walmart, Sam’s Club, Lowe’s, among others are still building in the recession, Murray said.

“Construction fell sharply for warehouses in 2008-10, but a very slight upward trend is beginning to emerge,” Murray said. “Starts are estimated to be 17 percent up this year, and 18 percent next year.”

Hotel building saw steep declines in 2009 and 2010, but is now seeing a slight upward trend, Murray said. “Estimating to see 34 percent increase in 2011, and 17 percent in 2012,” he said.

Tight credit conditions caused a lot of office projects to get deferred, Murray said. “Construction plunged in 2008-10, and leveled off in 2011,” he said. “Much of the recent activity is in government office buildings, data centers and corporate buildings. Construction is down 2 percent in 2011, and is estimated to be up 4 percent next year.”

The baseline forecast for institutional buildings calls for a 2 percent decline and the recession forecast a 3 percent decline next year, after a 15 percent decline in 2011, Murray said. “School construction continues to lose momentum,” he said. “Many states in recent years have passed school construction bond measures, especially California and Texas. Major universities re-evaluated capital spending plans due to shrinking endowments.” K-12 school construction is larger than colleges/universities/communitycolleges, particularly in square footage terms, but less so in dollar terms, Murray said. “In 2010, square footage for K-12 school construction was 3.6 times the size for colleges/universities/community colleges,” he said. “In the same year, dollars for K-12 school construction was 2.3 times the size of colleges/universities/community colleges.”

Hospital chains were hard hit in 2009 by tight credit conditions, Murray said. “The debate over health-care reform created near-term uncertainty, but the sector is still supported by an ongoing need to replace aging facilities and growth of elderly population,” he said. “The U.S. military Veterans Administration projects helped to ease some of the near-term slowdown, but less support is expected in 2012.” Healthcare facility construction is expected to remain flat this year, and decline 1 percent next year.

Institutional public buildings “got clobbered” by the winding-down of the stimulus finds, Murray said. “Public buildings had steep drop in 2010 that’s continued in 2011,” he said. This year, construction is down 27 percent, and in 2012 will be down 9 percent.

Amusement and recreation dropped sharply in 2009-10, Murray said. “This category is affected by both public and private financial support. The year 2010 included several large amusement renovation projects in NYC,” he said. “Casino projects are gaining some momentum.” Construction is down 16 percent this year, and will remain flat next year.

Airport terminal work in square foot jumped in 2009, but retreated in 2010, Murray said. “Work in dollar terms has held close to strong 2008 amounts,” he said. The category is down 20 percent in square footage this year, and down 5 percent next year; in dollars, it is up 5 percent this year, and down 7 percent next year.

In the manufacturing building category, Murray’s baseline forecast says an increase of 4 percent next year, but the recession forecast says a decrease of 5 percent next year, after a 35 percent gain in 2011. “Plant construction in square feet is turning up, and dollars now turning up as well,” he said.

In nonresidential construction, alterations did not decline as much as new/additions during recession, thus increasing percent share, Murray said.

In single-family housing, the baseline forecast says an increase of 10 percent next year, and the recession forecast says a decline of 2 percent. “Home foreclosure continues to affect the market,” Murray said. “Tight credit conditions also are affecting construction.”

Multifamily housing will rise 18 percent next year per the baseline forecast and decline 5 percent per the recession forecast. “Affordable housing projects received a boost from the stimulus,” Murray said. Both empty-nesters and now young adults are boosting the multifamily bottom line.

Public works construction will drop 5 percent next year per the baseline forecast, and 7 percent per the recession forecast. Electric utilities will retreat 24 percent in 2012 per the baseline forecast, and 35 percent per the recession forecast.

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