The economic environment has soured quickly for commercial buildings. While the latest reading on rental rate trends in positive, this is lagging 4th quarter data. The only other positive market driver is the declining 10-year T-Bill rate, the benchmark for commercial loans. But at this point in the cycle, lowering credit costs is like pushing on a string — nothing happens at the other end of the string. Cheaper credit will help the market return to growth, albeit modest, at the end of the year but now the weak space demand drivers are dominant, such as office employment and retail sales.

The environment for industrial construction appears neutral in the table but is expected to turn clearly negative with the next round of readings on monthly tracking data.

Also, the institutional and heavy/engineering market drivers appear to be mixed but will sour next month. Nonetheless, these sectors will continue to be propped up by still solid — but shrinking — public budget reserves.

Key Indicators of the U.S. Market Environment — February 2008 Commercial and Industrial Construction (Driven mainly by cyclical factors)
	Year Ago	Previous Month or Qtr.	Latest		Level	Recent Trend	Impact on Const.
Commercial
Dow Jones composite REIT, index (Dow Jones)	262	200	W/E Mar 12th	197	Avg	Falling
10-Year T-bill rate, % level (FRB)	4.56	3.64	W/E Mar 11th	3.59	Low	Falling
Office rent, 54 metro areas, % change y/y (PPR)	6.7	8.7	Q4	8.7	High	Rising
Office vacancy rate, 54 metro areas, % level (PPR)	15	14.7	Q4	14.8	High	Steady
Office employment, % change y/y (U.S. Labor Dept. and RCD)	1.7	1.1	Q4	1.2	High	Falling
Office construction starts ($s), 3-mon. ave. y/y (RCD)	88.6	-22.6	Feb	-32.5	High	Falling
Hotel room rate, 54 metro areas, % change y/y (PPR)	6.7	6.7	Q4	8.7	High	Rising
Hotel occupancy rate, 54 metro areas, % level (PPR)	67.3	67.3	Q4	67.4	Avg	Steady
Airline revenue passenger miles, % change y/y (RCD)	3.6	1.2	Feb	5	High	Rising
Real price of gasoline (July 07 = 100), $s/gal. (U.S. Energy Dept.)	2.34	3.04	Jan	3.05	High	Rising
Hotel construction starts ($s), 3-mon. ave. y/y (RCD)	90.4	-25	Feb	-31.1	High	Falling
Retail rent, 54 metro areas, % change y/y (PPR)	4.5	2.8	Q4	1.5	Avg	Falling
Retail vacancy rate, 54 metro areas, % level (PPR)	9.7	10.5	Q4	11	Avg	Rising
Retail sales, % change y/y (U.S. Census Bureau)	1	2.7	Nov	3	Avg	Steady
Consumer confidence index (The Conference Board)	111.2	87.3	Feb	75	Low	Falling
Consumer real income growth, % change y/y (U.S. Commerce Dept.)	5.7	-0.3	Jan	-1.2	Low	Falling
Retail construction starts ($s), 3-mon. ave. y/y (RCD)	4.7	2.7	Feb	-0.8	High	Falling
Industrial
Warehouse rent, 54 metro areas, % change y/y (PPR)	3.9	3.3	Q4	3.1	Avg	Falling
Warehouse vacancy rate, 54 metro areas, % level (PPR)	8.6	8.6	Q4	8.7	Avg	Steady
Business inventory, % change y/y (U.S. Census Bureau)	5.4	4.1	Jan	4.8	Avg.	Steady
Business sales, % change y/y (U.S. Census Bureau)	1.2	6	Jan	8.6	Avg.	Rising
Warehouse construction starts ($s), 3-mon. ave. y/y (RCD)	3.9	-6.8	Feb	-7.1	Avg	Falling
Capacity utilization rate, % level (FRB)	79.6	79.6	Jan	79.5	Avg	Steady
Manufacturing production index (FRB)	121.2	126.1	Jan	126.1	Low	Steady
Net imports of goods, $ billions (U.S. Commerce Dept.)	68.6	68	Jan	68.7	High	Steady
Abbreviations: y/y = year over year; WE = week ending; FRB = Federal Reserve Board; PPR = Property & Portfolio Research; RCD = Reed Construction Data. Table: Reed Construction Data and Reed Construction Data - CanaData.

Key Indicators of the U.S. Market Environment — February 2008 Institutional and Engineering Construction (Driven by demographics and government finances, as well as cyclical factors)
	Year Ago	Previous Month or Qtr.	Latest		Level	Recent Trend	Impact on Const.
Institutional
State & local govt. capital spending, $ billions (U.S. Commerce Dept.)	321	352	Q4	364	High	Rising
State & local government tax receipts, $ billions (U.S. Commerce Dept.)	1245	1296	Q4	1315	High	Rising
State budget reserves, % level (Rockefeller Institute of Govt.)	7.1	n/a	FY 06	9.8	High	Falling
Stock market index (Dow Jones)	12,110	11,894	W/E March 10th	12,110	High	Falling
K-12 enrollment, millions of people (U.S. Education Dept.)	54.725	n/a	2006-07	54.993	Avg	Steady
Higher-education enrollment, millions of people (U.S. Education Dept.)	17.35	na/	2006-07	17.664	High	Rising
Hospital receipts, $ billions (U.S. Health & Human Services Dept.)	611.566		2006	651.751	High	Steady
Prison population, % change y/y (Pew Charitable Trust)	4.5	N/A	2006-07	2.5	High	Falling
Heavy/Engineering
Federal highway trust fund, $ billions (U.S. Treasury Dept.)	13,731	11,606	Feb	12,319	Low	Falling
Electric power capacity utilization rate, % level (FRB)	85.8	87.5	Jan	89.2	High	Rising
Airline revenue passenger miles, billions (RCD)	3.6	1.2	Feb	5	High	Rising
State & local govt. capital spending, $ billions (U.S. Commerce Dept.)	321	352	Q4	364	High	Rising
State and local government tax receipts, $ billions (U.S. Commerce Dept.)	1245	1296	Q4	1315	High	Rising
Heavy contractor employment, 000s (U.S. Labor Dept.)	993.8	988.5	Feb	983.7	High	Falling
Construction equipment shipments, % change y/y (U.S. Census Bureau)	-31.5	-23.1	Jan	5.4	Avg	Steady
Abbreviations: y/y = year over year; WE = week ending; FRB = Federal Reserve Board; RCD = Reed Construction Data. Table: Reed Construction Data and Reed Construction Data - CanaData.

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