Volume 43, Issue 1 - January 2008
2008 Construction Outlook
by Tara Taffera
Overall, Murray is predicting commercial building construction starts to drop to $91.1 billion from a total of $97.3 billion in 2007.
The 6-percent drop in commercial building dollar volume corresponds to an 11-percent slip in square feet. Tighter lending standards and the slower absorption of space are expected to contribute to a measured downturn for stores, warehouses, offices and hotels.
Murray predicated a bigger drop in store construction than has occurred recently, down 10 percent in 2008 to 270 millions of square feet (msf). Wal-Mart, one of the major players in retail construction, has announced plans to scale back expansion, and that sentiment seems to be echoed by big box retailers Home Depot and Lowe’s. There is also a continuing shift to smaller venues, known as “lifestyle centers.”
After a pause in 2005, when many projects were reassessed due to higher costs, office construction strengthened once again. However, Murray is predicting an 8-percent drop in the msf constructed in 2008, from 215 msf in 2007 to 197 msf.
While hotel construction soared in 2006, 2007 showed a leveling off. 2006 and 2007 showed broad expansion, with numerous projects in Las Vegas and a number of convention center and “condo” hotels. The hotel sector is expected to pull back on expansions in 2008, as revenues per available room are showing slower rates of growth.
2008 is expected to see a 4-percent increase in the dollar volume of educational building construction, and a 1-percent increase in square footage. Numerous states, most notably California, have passed school construction bond measures in recent years. Major universities have increased their capital spending plans, keeping college and university construction on an upward track.
While construction of healthcare facilities reached a new high in 2006, that market is now settling back. 2006 saw 109 msf built in the healthcare arena, while 2007 saw an 8-percent drop to 100 msf; that downward trend is expected to continue with a 4-percent drop in 2008 to 98 msf.
“The credit crunch that emerged at mid-2007 continues to be a major concern for construction and the overall economy,” said Murray. “As a result, we’re now predicting downturns in the previously resilient multifamily and commercial segments, as well as continued weakness in single-family home construction.”
Housing Market—No Sign of Recovery in 2008
He said a recovery could be possible in 2009, but was tentative with that prediction.
Though homebuilding is in the midst of a significant downturn, Baker said, “With every day this is becoming more significant than first expected.”
Though the next few years may look bleak, he did say that the long-term housing outlook is positive as there is strong household growth (which should be even greater in the coming decade than in the last), a vibrant second home market and a more efficient industry as a whole. Negatives include affordability, land-use restrictions and high energy costs.
While new construction falters, Baker says remodeling does offer opportunities. Positives for the long-term remodeling outlook are the aging housing stock, rising land prices/energy costs and high homeowner equity levels. “Often this translates into home improvement spending,” he said.
Building Materials to Remain Relatively Flat
“Collectively, pricing is projected to be flat in 2008,” he said. Following are a few key predictions:
Economic Outlook: Fair
He noted that the weaknesses aren’t found in the high-priced markets; rather, the default rates are highest in the Midwest and the South. He said that employment is finally improving, which is helping construction. However, he questioned whether or not the consumer can keep spending and said the saving rate will remain low.
“A risk of recession remains if further terror attacks damage confidence, while oil prices soar. Financing problems push the dollar down and U.S. bond yields higher,” he told attendees. This falling of the dollar value has some companies like Canadian door manufacturer Harring Doors concerned.
“As a Canadian manufacturer who sells into the United States, the presentations given confirmed that the dollar will decline, which won’t help us,” said Sandy McTavish, vice president, manufacturing, who attended the conference for the first time this year.
Tara Taffera is a contributing editor for USGlass magazine.