Office construction has declined slightly so far this year with further small declines expected over the next year but office development has a small amount of growth left in this building cycle as soon as growth resumes in the domestic economy next year.

Reed Construction Data expects the modest dip in office construction in 2008-09 to be offset by renewed expansion in 2010-11 because the amount of office space completed in the last two years is less than two-thirds of completions at the peak of the last building cycle. Peak office building activity in this building cycle has not yet been reached but it has been postponed by the 2008 decline in office space demand.

The value of office construction starts is up 2.5% year to date through July compared to the same period last year. This is a 3-5% decline after subtracting project cost increases. Although July had the lowest starts total in more than two years, the expected trend through 2009 is for little change in the nominal value of starts. Office construction spending is 15.4% above a year ago but the expansion in ebbing quickly. Spending gained only 1.6% in the last three months, short of the increase in project costs.

The current national market situation is a weak and weakening private sector, starts are off 12.5% year to date, and rapid growth in public office starts, up about 100% year to date to record high level. A year ahead, private starts will be rising in an improved economy and public starts will be declining under pressure from two years of weak tax receipts and plunging budget reserves.

Office development through 2009 will be weakest in the depressed industrial cities in the Midwest and strongest in the more rapidly growing economies in the Northeast and in the resource belt from Texas to the Dakotas.

Source: US Census Bureau

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