Non-Residential construction spending has declined 25.1% since the November 2008 peak level. But the trend has been very different in the three major sectors. Spending for institutional buildings continued to increased through June and fell only 3.4% by August. Spending for manufacturing buildings, both traditional factories and energy related facilities continued to increase through May and has since declined 6.6% through August. Spending for commercial buildings — hotel, office, retail and warehouse — peaked in November 2008 and then plunged 31.6% through August 2009.

The varying trends result from different financing and ownership practices in the three market segments. Most manufacturing and institutional projects are specialized facilities built for owner-occupiers who have both a need for more capacity and the funds on hand or already arranged to built the project. Hence, they are not concerned about adverse short term trends in the sale value of the building or the potential market rent that it could command. If they need it and can afford it, they build it. So they kept adding more construction into the spring of 2009 because they had the financing previously arranged before the deep recession began.

However, projects financed by commercial developers are very sensitive to short term credit, occupancy and rental rate changes. This is because they often start construction with only short term financing which they plan to rollover when it expires. And their profitability calculations include a term for capital gains on the sale of the building. Expected gains turn into losses when occupancy rates and rental rates decline in a recession. So commercial developers began to cutback instantly when the September 2008 credit crisis soured their outlook for occupancy, rents and capital value.