
Downward revisions for this sector in recent months and in the annual comprehensive revision suggest that the Census Bureau is missing more post start project shutdowns than it is missing project starts. In turn, this suggests that nonresidential construction is still weakening. The near term spending trend is at best unchanged until the end of the year. With activity near the bottom for this building cycle, expect brief month-to-month expansion spurts for some types of projects through the summer but no sustained expansion until yearend.
Institutional construction is being boosted by long delayed stimulus plan funds but at the same time being restrained by critically low state and local government budget reserves and appropriation cuts made necessary by the high post-recession costs of medical and social programs. State tax receipts are now stabilizing but local government tax receipts, highly dependent on property taxes, are still declining. The net effect is a forecast of essentially no change in institutional construction spending until the beginning of 2011. K-12 education and public safety buildings will be the weakest sectors. Institutional construction spending fell 0.9% in May.
With the recent revisions, developer financed construction will see only a 1-2% drop from May until fall. Real estate investors see better profit opportunities in buying existing buildings than building new buildings. Building prices are 40% below the recent peak level with many properties available at even deeper discounts when the current owners lack the equity to rollover short term mortgages. Occupancy and rental rates are depressed and will decline slightly more for another six months.
That said, investors who want to get in cheap on a rising market are now planning to build new space to be available for lease in 2011. The American Institute of Architects’ survey of designer activity shows that the decline in design work has ended although no pickup has yet happened. Buildings being designed now are likely to start later this year and be ready for occupancy 10-18 months ahead when rental rates are higher and rising. But until late this year, most of the commercial starts will be renovation and buildings designed for special uses or to be owner occupied.
|
U.S. Nonresidential Construction |
|||||||
| Monthly Figures* (latest actual values) |
Annual Figures | ||||||
| Actual | Forecast | ||||||
| Apr-10 | May-10 | 2007 | 2008 | 2009 | 2010 | 2011 | |
| Lodging (% change is period versus same period, previous year) |
11.504 | 11.056 | 28.683 | 35.803 | 25.458 | 11.465 | 12.288 |
| -62.8% | -62.0% | 59.5% | 24.8% | -28.9% | -55.0% | 7.2% | |
| Office | 37.439 | 36.858 | 65.198 | 68.403 | 52.868 | 37.130 | 37.950 |
| -32.9% | -33.8% | 20.4% | 4.9% | -22.7% | -29.8% | 2.2% | |
| Commercial (mainly retail) | 40.302 | 40.198 | 89.298 | 86.395 | 55.421 | 41.227 | 44.288 |
| -34.7% | -31.8% | 16.5% | -3.3% | -35.9% | -25.6% | 7.4% | |
| Health Care | 39.449 | 39.516 | 43.725 | 46.830 | 45.151 | 39.890 | 44.275 |
| -14.6% | -14.6% | 13.6% | 7.1% | -3.6% | -11.7% | 11.0% | |
| Education | 88.641 | 87.516 | 96.514 | 104.682 | 102.874 | 88.993 | 93.925 |
| 0.0% | 0.0% | 13.4% | 8.5% | -1.7% | -13.5% | 5.5% | |
| Religious | 5.466 | 5.696 | 7.541 | 7.230 | 6.227 | 5.800 | 6.000 |
| -18.2% | -4.7% | -2.6% | -4.1% | -13.9% | -6.9% | 3.5% | |
| Public Safety | 12.853 | 12.703 | 10.172 | 13.086 | 14.087 | 12.512 | 12.900 |
| -11.5% | -13.8% | 30.4% | 28.6% | 7.7% | -11.2% | 3.1% | |
| Amusement/Recreation | 16.655 | 16.239 | 21.169 | 21.855 | 18.885 | 15.894 | 17.025 |
| -16.3% | -17.7% | 11.5% | 3.2% | -13.6% | -15.8% | 7.1% | |
| Manufacturing | 44.389 | 43.601 | 40.503 | 53.099 | 58.702 | 42.850 | 43.725 |
| -31.3% | -31.5% | 25.3% | 31.1% | 10.6% | -27.0% | 2.0% | |
| Total | 296.698 | 293.383 | 402.803 | 437.383 | 379.673 | 295.762 | 312.375 |
| -27.3% | -27.0% | 18.7% | 8.6% | -13.2% | -22.1% | 5.6% | |
|
*Monthly figures are seasonally adjusted at annual rates (SAAR figures). |
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