The freefall in the nonresidential building market is over but construction will continue declining into the winter. The balance of economic drivers are clearly negative for nonresidential building construction. The only improving indicators are several long lead indicators — credit costs and REIT share prices — and several indicators that are essential to factory sales expansion. All other indicators suggest that the current surplus of commercial building space will worsen further before it turns to improvement.

Lingering credit problems for nonresidential developers and their customers and tenants are difficult to measure. Borrowers’ balance sheets are decidedly unattractive to lenders. Balance sheets have been weakened by the long deep recession. And lenders are being cautious in approving loans because they know they are nearing a constraint in available credit as the overall economy recovers. Reduced financial leverage — less lending for a given amount of deposits/capital — and the drain of several $Trillion to new federal subsidy programs will keep credit hard to get and more expensive for nonresidential developers.

Traditional manufacturing operations are now recovering quickly but capacity utilization at 67% is far too low to spur significant new or remodeled space needs for at least a year.

Institutional construction activity is now declining slowly with most of small expected decline still ahead. The usual cyclical, pattern is distorted by the stimulus plan. So far it has propped up state budget balances and maintained some construction activity that otherwise would have been halted. Recall that California had to halt many projects before the federal stimulus money arrived. Ahead the stimulus plan will fund as much as $100 Billion in institutional building beginning soon and stretching beyond 2012.

The boom in energy related industrial construction is over. Now both energy demand and energy prices are below expected levels projects scheduled to start in the next year were planned. A huge decline is expected in 2010 for refineries, pipelines and oil & gas field facilities.

Key Indicators of the U.S. Market Environment — Sept 2009 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)	194	122	Sep 21 09	141	Low	Rising
10-Year T-bill rate, % level (FRB)	4.01	3.56	Sep 18 09	3.46	Low	Falling
Office rent, 54 metro areas, % change y/y (PPR)	3.1	-4.4	Q2	-7.1	Low	Falling
Office vacancy rate, 54 metro areas, % level (PPR)	15.7	17.5	Q2	18.4	High	Rising
Office employment, % change y/y (P&PR)	0.6	-3.3	Q2	-4.9	Low	Falling
Office construction starts ($s), 3-mon. ave y/y % change (RCD)	1.1	-56.5	Aug	-54.8	Low	Falling
Hotel room rate, 54 metro areas, % change y/y (PPR)	-6	-9	Q2	-13	High	Falling
Hotel occupancy rate, 54 metro areas, % level (PPR)	66	63.0	Q2	61	Average	Falling
Airline revenue passenger miles, % change y/y (RCD)	-1.6	-4.1	Aug	-3.7	Low	Falling
Real price of gasoline , $s/gal. (U.S. Energy Dept.)	372.4	252.1	Aug	262.4	High	Rising
Hotel construction starts ($s), 3-mon. ave. y/y (RCD)	0.9	-45.9	Aug	-47.6	Low	Falling
Retail rent, 54 metro areas, % change y/y (PPR)	-2.5	-13.0	Q2	-6.7	Low	Falling
Retail vacancy rate, 54 metro areas, % level (PPR)	12.4	16.2	Q2	17.6	Low	Rising
Retail sales, % change y/y (U.S. Census Bureau)	2.9	-8.5	Aug	-5.4	Low	Falling
Consumer confidence index (The Conference Board)	58.5	47.4	Aug	54.1	Low	Rising
Consumer real income growth, % change y/y (U.S. Commerce Dept.)	11.7	3.8	July	4.0	High	Rising
Retail construction starts ($s), 3-mon. ave. y/y (RCD)	-29.2	-51.3	Aug	-56.2	Low	Falling
Industrial
Warehouse rent, 54 metro areas, % change y/y (PPR)	-2.5	-6.7	Q2	-6.7	Low	Falling
Warehouse vacancy rate, 54 metro areas, % level (PPR)	9.6	11.3	Q2	12.2	High	Rising
Business inventory, % change y/y (U.S. Census Bureau)	6.8	-11.1	July	-11.8	Low	Falling
Business sales, % change y/y (U.S. Census Bureau)	7.9	-18.0	July	-17.8	Low	Falling
Warehouse construction starts ($s), 3-mon. ave. y/y (RCD)	18.7	-9.7	Aug	-49.6	Low	Falling
Capacity utilization rate, % level (FRB)	75.3	66.2	Aug	66.7	Low	Rising
Manufacturing production index (FRB)	111.0	97.0	Aug	97.6	Low	Rising
Goods Exports $ billions (U.S. Commerce Dept.)	117.2	84.1	July	86.7	Low	Rising
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 — July 2009 Institutional 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.)	349	348	Q2	360	Average	Steady
State & local government tax receipts, $ billions (U.S. Commerce Dept.)	1357	1272	Q2	1253	Low	Falling
State budget reserves, % of Exp. (National Governors assn.)	10.5	n/a	FY 08	8.0	High	Falling
Stock market index (Dow Jones Industrial)	11,143	9,544	Sep 21 09	9,779	Low	Rising
K-12 enrollment, millions of people (U.S. Education Dept.)	55.762	n/a	2007-08	55.966	Average	Steady
Higher-education enrollment, millions of people (U.S. Education Dept.)	17.598	na/	2007-08	18.264	High	Rising
Hospital receipts, $ billions (U.S. Health & Human Services Dept.)	648.2		2007	696.7	High	Rising
Prison population, % change y/y (Pew Charitable Trust)	4.3	N/A	2007-08	2.5	High	Falling
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.