Construction Forecast Conference Addresses Increases in Commercial Construction

Reed Construction Data hosted its Eleventh Annual Construction Forecast Conference, October 10-11, at the National Press Club in Washington, D.C.

During his presentation on the U.S. construction economic forecast, Jim Haughey, chief economist for Reed, noted that although residential construction has slowed, the nonresidential boom continues. In commercial construction, Haughey said that project starts have increased progressively since last spring. He noted that starts from January-August 2006 have been 9.5 percent higher than for the same period in 2005. He added that construction spending was 15.8 percent higher in July 2006 than a year earlier.

"Construction spending has been [higher] than construction starts," said Haughey.

The nonresidential starts forecast Haughey offered shows the highest overall growth in 2006:

· 2005 - 9.4 percent;

· 2006 - 11.8 percent;

· 2007 - 6.7 percent; and

· 2008 - 4.4 percent.

The speakers broke the commercial construction market down further into a few specific sectors where they expect some growth, notably: lodging, manufacturing, office and healthcare construction.

"Lodging is a hot market this year and office is the lagging market," Haughey began.

Ken Simonson, the chief economist of the Association of General Contractors of America who offered the general contractor's business outlook, said that that he still sees 6-12 months of strong growth in lodging construction.

Haughey continued, "Construction in the office market probably won't peak for two years."

According to Joshua Scoville, director of strategic research of Property and Portfolio Research, who presented the outlook for future development in commercial construction, "We're seeing office [construction] pick up as well." He noted that compared to apartment construction, office construction is experiencing a "slower but still steady recovery."

He added there is still a new supply of office buildings, but that supply never really "shut down," one reason growth hasn't increased more.

According to Haughey, construction in the healthcare sector will soon be fueled by a surge in healthcare insurance premiums and public medical programs.

Simonson said that he feels the healthcare construction is "catching up" after years of cutting back on construction. He also said that he sees the healthcare industry increasing construction to "catch up" on new and changing technology.

With regards to manufacturing facilities, Haughey noted that manufacturing capacity utilization is up near 82 percent, which he said is above the usual threshold for a surge in capacity investment. Simonson added that as production is strong, he still sees growth in manufacturing plant construction. Scoville said that most warehouse construction will be for large projects.

In addition, Haughey said the education arena is seeing growth due to the fact that state and local tax receipts have been rising strongly for three years following a depression level plunge in 2001-2002.

"Retail market is in fantastic shape and has been in fantastic shape for several years," added Scoville. "We are seeing a slight increase in construction."

He said that there is been a lot of strength in retail due to the strong housing market. He added that in the past a great deal of retail construction has been redevelopment, but is "today focused more and more on new construction."

Another area Simonson added to the list is "energy-related construction;" he noted that as more people search for alternatives to oil, construction will increase for facilities working to develop those alternatives.

So where is all of this construction taking place?

According to Haughey, construction slowdown has been deepest in the South and West, and the Rocky Mountain States are on the top of construction growth.

"That's become the biggest growth area in the country," Haughey said.

The speakers also had some comments to make on the construction labor outlook.

Haughey predicted that there will be 120,000 new jobs in 2007 (150,000 were added in 2006). Scoville noted modest job growth over the forecast. He said that monthly job growth has slowed from an average of 175,000 per month at the beginning of the year to around 125,000 per month recently. He noted that total employment growth was at 1.9 million in 2006.

The speakers noted that with lower rates of unemployment its going to become difficult not just to find skilled workers but workers in general.

"They're having a lot of trouble finding contractors," said Simonson.

Haughey said that he feels the labor pool has been reduced in part by stronger immigration enforcement and from hiring by manufacturers and motor carriers.

"Companies will be forced to move shops where the labor is," added Scoville.

Haughey also said, "Wage rate gains have lagged the economy in nonresidential and heavy construction markets but will accelerate in 2007."

For more information on the construction industry forecast, look for the December issue of USGlass magazine. Subscriptions are complimentary to those in the glass industry.

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