Murray Predicts Scaling Back for 2008 Commercial Construction Outlook

This year marks the first decline in construction starts since 1991, according to the Department of Commerce, said Robert Murray, vice president of economic affairs for McGraw-Hill, during McGraw-Hill Construction's Outlook 2008 Executive Conference yesterday in Washington, D.C. Murray presented the 2008 outlook for U.S. construction activity.

Overall, Murray is predicting commercial building construction starts to drop to $91.1 billion from a total of $97.3 billion in 2007.

"The credit crunch that emerged at mid-2007 continues to be a major concern for construction and the overall economy," said Murray. "As a result, we're now predicting downturns in the previously resilient multifamily and commercial segments, as well as continued weakness in single-family home construction."

The 6 percent drop in commercial building dollar volume corresponds to an 11 percent slip in square feet. Tighter lending standards and the slower absorption of space are expected to contribute to a measured downturn for stores, warehouses, offices and hotels.

Murray predicted a bigger drop in store construction than has occurred recently, down 10 percent in 2008 to 270 msf. Wal-Mart, one of the major players in retail construction, has announced plans to scale back expansion, and that sentiment seems to be echoed by big box retailers Home Depot and Lowe's. There is also a continuing shift to smaller venues, known as "lifestyle centers."

After a pause in 2005 where projects were reassessed due to higher costs, office construction strengthened once again. However, for 2008 Murray is predicting an 8-percent drop in the millions of square feet (msf) constructed, from 215 msf in 2007 to 197 msf.

While hotel construction soared in 2006, 2007 showed a leveling off. 2006 and 2007 showed broad expansion, with numerous projects in Las Vegas and a number of convention center and "condo" hotels. The hotel sector is expected to be pulling back on expansions in 2008, as revenues per available room are showing slower rates of growth.

2008 is expected to see a 4-percent increase in the dollar volume of educational building construction, and a 1-percent increase in square footage. Numerous states, most notably California, have passed school construction bond measures in recent years. Major universities have increased their capital spending plans, keeping college and university construction on an upward track.

While construction of healthcare facilities reached a new high in 2006, that market is now settling back. 2006 saw 109 msf built in the healthcare arena, while 2007 saw an 8-percent drop to 100 msf; that downward trend is expected to continue with a 4-percent drop in 2008 to 98 msf.

U.S. Total Construction Starts for 2008
In billions of dollars

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