WASHINGTON, D.C. - Construction industry analysts and economic forecasters at CMD's
6th annual North American Construction Forecast conference delivered bad and good
news: the rest of 2001 and much of 2002 will see declines in construction activity
and the economy in general. But most presenters also predicted quick recovery
by 2003. The event was held October 16 at the National Press Club and attended
by more than 300 construction industry leaders.
According to Bill Toal, chief economist for the Portland Cement Association,
the U.S. construction industry can expect an overall decline of 6.3 % in activity
next year due to the economic downturn. Still, "by historical contrast
this would put construction spending back to slightly above 1998 levels, which
were record levels of activity," he said.
"We expect a 10 % decline in private, nonresidential construction spending
next year after a 5.4 % drop this year," Toal said. On the residential
side, increased unemployment and stock market volatility will hit the consumer
causing home sales to decline by 8.5 % next year after increasing by 1.2 % this
David Seiders, chief economist for the National Association of Home Builders
(NAHB), agreed that the residential market has been hurt and will continue to
suffer in the immediate future. He pointed out that industry sales are now about
the same as the mid 90s, which is "not that bad … baby talk when compared
to the 80s and early 90s."
Toal and Seiders said it won't take long for the construction industry to recover.
Toal predicts the construction industry overall will see a 4.2 % increase by
2003 and Seiders forecasts recovery for residential markets to begin as early
as the first quarter of 2002. Toal, Seiders, and other construction industry
analysts, as well as experts from Canada and Mexico, shared their outlook on
the economic state of the nation and the construction industry. Following are
excerpts; complete coverage can be found at www.nacf.com.
U.S. Construction Outlook: Toal attributed the decline in construction activity
in part to a "hole in the economy. The economy was already weakening significantly
before the events of September 11." Forecasts have been revised down further
because of those events. For the overall economy, Toal revised his spring forecast
of 1.7 % growth in economic activity down to 1 % growth for 2001. He revised
his overall economic growth rate predictions for next year to 1.8 % down from
his prior forecast of 2.7 %. In contrast to the declines in residential and
nonresidential construction, public construction was predicted to grow slightly,
albeit at a much slower rate than it has for the past two years.
Residential Construction Outlook: Seiders said NAHB adjusted its housing market
index following the September 11 attacks. About 10 days after the attacks, housing
production fell by about 5 %, he said. In a supplemental survey of homebuilders,
56 % of respondents said new home sales had declined even further in the wake
of the attacks. Figures released a few hours after Seiders' speech showed the
NAHB monthly index dropped 8 points from 56 to 48.
Retail/Industrial/Commercial Outlook: Glenn Mueller, professor, John Hopkins
University Real Estate Institute and managing director, Real Estate Investment
Strategy, Legg Mason, Inc., said there are two ways to look at how construction
is faring: the physical realities of demand and supply and the financial realities
of where capital is flowing and how it affects pricing. For example, demand
and supply in the office sector has reached some equilibrium after several decades
of dramatic swings in what was available and who wanted it, he said. Those levels
will remain somewhat balanced though both sides will be lower for the next year
or so, he said.
Except for a the short term displacement from the tech bubble bursting and
the 9/11 economic slowdown. As far as financing for the different segments,
the late 80s saw a phase of false price appreciation from too much financing
that peaked in the first quarter of 1996, then began to fluctuate widely through
the 90s as the public markets became more involved in financing real estate.
Originally, Mueller predicted the physical cycle would be bottoming in 2001
then returning to a growth phase by late 2002, but the September 11 events may
push that into 2003 he said. Capital flows will be affected by fear. However,
the lowest interest rates in this lifetime have created significant opportunities
for investing in real estate, he added.
Federal Reserve Regional Outlook: Ray Owens, research officer and economist
for the Federal Reserve Bank of Richmond, said Northern Virginia's commercial
real estate market has reflected national trends in the last year: increases
in office vacancies and subleasing were helped along by the decline of the high
technology industries. He predicted that vacancy rates, while on the increase,
would level out during 2001 and would not get anywhere near the historically
high levels of the early 1990s.
Federal Construction Outlook: Edward Feiner, FAIA, chief architect, U.S. General
Services Administration, said public architecture no longer consists of "finding
ways to build great boxes," like most federal buildings used to be. Many
old buildings are being retrofitted for a more modern look, as well as better
building security and seismic protection. Feiner said the events of September
11 and the bombing of the Oklahoma City federal building will not frighten government
building out of downtowns.
Major Projects and Trends for 2002: A panel of leading design, construction
and engineering experts outlined the trends for the built environment based
on recent and planned projects.
- Edward Friedrichs, FAIA, president and CEO of Gensler, mentioned several
adaptive reuse projects of structures that had not attained sufficient occupancy
rates, such as turning a large plant into a mega-church.
- Ray Messer, PE, president and chairman of the board for Walter P. Moore,
said new business is coming in from many areas of the country that need to
build up deteriorating infrastructure.
- Pat Priest, CFO/Managing Director of The Beck Group, noted that early signs
indicate changes in the basic design/engineer/estimate/construct process.
Instead of acting in different "silos," companies are forming teams among
its experts to deliver projects quicker, with fewer prices and at less cost.
- Harold Adams, FAIA, chairman of RTKL, which just won a contract to work
on replacing parts of the Pentagon, observed that while the rest of the world
is seeing slowdowns, China is an active market.
- Stephen Fiskum, COO of Hammel Green and Abrahamson said one of the greatest
challenges firms face is to maintain strong balance sheets by containing expenses
instead of looking for new ways to invest.
Canadian Outlook: Alex Carrick, chief economist for CanaData, expects Canadian
housing starts, which had grown to 162,000 average units per month from January
to August this year, will probably fall nearer to 157,000 starts per month by
year end and 153,000 starts in 2002. He said the events of September 11 will
cause the broad-based demand for high-rise condos to suffer. Most provinces
will also see a decline in commercial, industrial, and institutional construction
starts, which he predicted would be off by just over 1% for the country as a
Mexican Outlook: Mario Rodarte, chief economist for the Center for Economic
Studies for the Private Sector, said the Mexican economy is still growing and
inflation levels are lower than predicted. However, the construction industry,
which comprises 4.2 % of the nation's GDP and employs 6.3 % of the workforce,
is not faring well under current economic conditions and is expected to decline
modestly in 2001.
For more construction forecast information from CMD's North American Construction
Forecast speakers, please visit www.nacf.com.
CMD's annual North American Construction Forecast conference assembles leading
economists and analysts in every area of construction - office, retail, industrial,
residential, and infrastructure - who offer eagerly anticipated forecasts of
coming year construction throughout North America and by specific metro region.
More information about the conference is at www.nacf.com.
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