Nonresidential Construction Will Drop Modestly in 2008, Followed by Severe Drop in 2009
Cutbacks in demand for new space will lead to a mild decline in nonresidential construction for the remainder of 2008, according to a new report from the American Institute of Architects (AIA), followed by a more severe downturn in 2009.
Cutbacks in demand for new space will lead to a mild decline in nonresidential construction for the remainder of 2008, according to a new report from the American Institute of Architects (AIA), followed by a more severe downturn in 2009.
Overall, the
Semi-annual Consensus Construction Forecast is predicting a 1.9 percent decline in inflation-adjusted activity in 2008. The report projects a 6.7 percent decline in 2009.
The forecasts are more negative for commercial and industrial buildings, with an especially large drop-off in the office and retail sectors. The two largest institutional categories, health care and education facilities, should see a slight increase this year and could help offset some of the losses in the other project categories.
"The more pessimistic forecasts this round stems from the lack of growth in the overall economy, the ripple effect from the faltering housing market and the anxiety in the credit markets leading to a restriction in lending for all types of construction projects," says Kermit Baker, AIA chief economist. "The one bit of good news is that this contraction in activity is likely to be considerably milder than the construction recessions of the early 1990’s and earlier this decade."
The continued increase in building material costs in recent years could also adversely affect the construction industry, according to AIA.
"Another key concern for the industry is that the cost of construction materials has increased more than twice that of consumer products and services – up 37 percent versus 18 percent since 2004," says Baker. "Petroleum-based materials and other key construction commodities such as steel, concrete and stone have experienced very sharp price increases in recent years."
Market Segment Consensus Growth Forecasts
Commercial / industrial
2008 2009
Retail -8.3 percent -9.9 percent
Office buildings -3.7 percent -12.3 percent
Hotels 6.6 percent -9.9 percent
Industrial facilities 4.6 percent -5.5 percent
Institutional
Health care facilities 0.2 percent 1.1 percent
Education 2.7 percent -1.1 percent
Amusement / recreation 3.6 percent -8.5 percent
Public safety 5.9 percent -1.9 percent
Religious -11.7 percent -1.2 percent
The AIA Consensus Construction Forecast Panel is conducted twice a year with nonresidential construction forecasters in the United States including, McGraw Hill Construction, Global Insight, Moody’s economy.com, Reed Business Information, FMI, and the Portland Cement Association. The purpose of the Consensus Construction Forecast Panel is to project business condition in the construction industry over the coming 12 to 18 months.
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