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Nonresidential Building Construction Increased 0.3% in April

0 309 Market Intelligence

The small April increase was after a downward revision for March so there was no net progress. Spending estimates were revised down in March for all building sectors except single family housing and then reported higher in April for all sectors except multi family housing, retail, education and public safety. The near term spending trend is still slightly down until the end of the year, says Reed Construction Data chief economist Jim Haughey.

The small April increase was after a downward revision for March so there was no net progress. Spending estimates were revised down in March for all building sectors except single family housing and then reported higher in April for all sectors except multi family housing, retail, education and public safety. The near term spending trend is still slightly down 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 late in the year.

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.

Developer financed construction will see a 3-5% drop from April until early in the 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
(billions of U.S. current dollars)

  Monthly Figures*
(latest actual values)
Annual Figures
  Actual Forecast
  Mar-10 Apr-10 2007 2008 2009 2010 2011
Lodging (% change is period versus
same period, previous year)
12.101 12.229 28.676 35.819 25.136 12.503 13.575
-61.4% -59.7% 59.5% 24.9% -29.8% -50.3% 8.6%
Office 41.437 41.506 65.195 70.078 55.630 40.826 40.400
  -34.1% -29.4% 20.4% 7.5% -20.6% -26.6% -1.0%
Commercial (mainly retail) 43.033 41.606 89.233 85.097 58.295 41.861 44.288
  -37.7% -36.8% 16.4% -4.6% -31.5% -28.2% 5.8%
Health Care 41.677 41.984 43.725 47.581 46.725 42.249 47.575
  -12.9% -12.7% 13.6% 8.8% -1.8% -9.6% 12.6%
Education 89.402 89.221 96.523 103.785 102.836 89.040 94.225
  0.0% 0.0% 13.4% 7.5% -0.9% -13.4% 5.8%
Religious 5.893 5.979 7.541 7.130 6.349 5.914 6.000
  -15.8% -12.8% -2.6% -5.5% -10.9% -6.9% 1.5%
Public Safety 12.942 12.338 10.172 12.931 14.216 12.278 13.338
  -8.0% -13.1% 30.4% 27.1% 9.9% -13.6% 8.6%
Amusement/Recreation 15.555 16.590 21.172 21.486 18.695 15.790 17.025
  -22.6% -16.7% 11.5% 1.5% -13.0% -15.5% 7.8%
Manufacturing 56.745 58.391 45.496 61.113 75.161 56.136 55.625
  -31.2% -31.1% 29.6% 34.3% 23.0% -25.3% -0.9%
Total 318.785 319.844 407.733 445.018 403.042 316.598 332.050
  -28.2% -26.8% 19.2% 9.1% -9.4% -21.4% 4.9%

*Monthly figures are seasonally adjusted at annual rates (SAAR figures).
Actuals: U.S. Census Bureau (Department of Commerce) (put-in-place investment figures).
Forecasts and table: Reed Construction Data.

by Jim Haughey

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