Predict Commercial Construction for 2008 Will Show Drop
During last week's annual Outlook Executive Conference: '09 Industry
Forecasts and Trends included a range of speakers and forecasters
with outlooks on the current economy and predictions for the 2009
construction market, Robert Murray, vice president of economic affairs
for McGraw Hill Construction, predicted that while the commercial
market was still up last year, 2008 will not show the same increase.
"Last year, commercial building was still showing increases,"
he said. "This year, it will show decreases."
The forecast, organized by McGraw Hill Construction, was held at
the Capitol Hilton in Washington, D.C., October 22-23.
Murray also noted that some of the financial problems of the residential
market are beginning to spill onto the commercial side.
"For developers, loans are getting personal," Murray
said, adding that many commercial loans now contain provisions for
the lender to go after the borrowers personally in the event of
a default. However, so far, he said defaults are rare.
"We haven't seen anywhere near the number of commercial defaults
that have been present on the residential side," he said.
One factor playing into commercial construction is declined consumer
"Basically, we're seeing the impact of slower retail sales,"
he said, pointing to the fact that Home Depot closed 15 stores earlier
this year (leading to more available commercial facilities). Murray
predicted the store sector will drop 15 percent more in 2009.
In the area of hotels, Murray suspects this will drop as well.
"The expectation is that this market is due for a pretty substantial
fall-out," he said.
Offices, however, were one bright point in the presentation.
"If you had to pick one area that avoided the typical boom
and bust cycle, it would be offices," he said. However, the
fact that many layoffs have occurred of late, even in the office
sector (he pointed to Goldman Sachs as one of many examples) he
suspects this area of construction to lag as well-but not to experience
a major bust.
"Because we avoided that kind of surge that we had in the
prior decade, the decline is going to be less severe," he said.
In making predictions for the building of colleges and universities,
Murray suggested that this is a difficult area in which to forecast.
"The question is, will they, too, be subject to the financial
climate?" he asked.
Hospitals also were a somewhat positive spot. Murray noted that
in 2007, hospital building dropped, but rose again in 2008.
Construction for the manufacturing industry, on the other hand,
is likely to see a rapid drop.
"The monetary volume of activity has just soared," he
said. "Overall, our monetary volume is expected to be weakening
[in this area] as well in 2009."
Overall, Murray looks to see a 7 percent decrease in commercial
construction in 2009; on top of a 12-percent decline in 2008.
Murray noted that this year's forecast has been one of the most
difficult, saying that he and his staff revised the forecast several
times based on recent events.
"This was a tough forecast," he said. "This is a
There are still pluses."
Norbert Young, president of McGraw Hill Construction, ended the
host of presentations with a list of what he sees as four positive
indicators for the economy and for the construction climate:
- The powerful influence of green;
- The growth in virtual design and construction;
- The power of immigration; and
- The fact that a new president soon will be elected.
Source: McGraw Hill Construction
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