Volume 44, Issue 1 - January 2009

Feature

Going Down?
Commercial Construction Will Show Drop in 2009
by Penny Stacey

What’s the forecast for 2009? Pretty cloudy. Robert Murray, vice president of economic affairs for McGraw Hill Construction, predicted that while the commercial market still increased in 2008, 2009 will not show the same increase. Murray made his predictions to a group of construction professionals in October in Washington, D.C.

Overall, the tone of the Outlook Executive Conference: ’09 Industry Forecasts and Trends, organized by McGraw Hill Construction October 22-23, was one of gloom, although forecasters still were able to point to some bright spots in the year ahead. 

Financial Follies
Murray also noted that some of the financial problems of the residential market are beginning to spill onto the commercial side.

“For developers, loans are getting personal,” Murray said, adding that many commercial loans now contain provisions for the lender to go after the borrowers personally in the event of a default. So far, such defaults are rare. “We haven’t seen anywhere near the number of commercial defaults that have been present on the residential side,” he said.

One factor playing into commercial construction is a decline in consumer confidence.

“Basically, we’re seeing the impact of slower retail sales,” he said, pointing to the fact that Home Depot closed 15 stores earlier this year (leading to more available commercial facilities). Murray predicted the store sector will drop 15 percent more in 2009.He expects to see a drop in the area of hotels as well.

“The expectation is that this market is due for a pretty substantial fall-out,” he said.

A Bright Spot?
Offices, however, were one bright point in the presentation.

“If you had to pick one area that avoided the typical boom and bust cycle, it would be offices,” Murray said. However, because many layoffs have occurred of late, even in the office sector, he suspects this area of construction to lag as well—but not to experience a major bust.

“Because we avoided that kind of surge that we had in the prior decade, the decline is going to be less severe,” he said.

Murray suggested that the building of colleges and universities is a difficult area in which to forecast.

“The question is, will they, too, be subject to the financial climate?” he asked.

Hospitals also were a moderately positive spot. In 2007 hospital construction dropped, but rose again in 2008.Construction for the manufacturing industry is likely to see a rapid drop.

“The monetary volume of activity has just soared,” he said. “Overall, our monetary volume is expected to be weakening [in this area] as well in 2009.”Overall, Murray looks to see a 7-percent decrease in commercial construction in 2009, on top of a 12-percent decline in 2008.

Tough Predictions
Murray noted that this year’s forecast has been one of the most difficult, saying that he and his staff revised the forecast several times based on recent events.

“This was a tough forecast,” he said. “This is a cyclical business … there are still pluses.

Norbert Young, president of McGraw Hill Construction, ended the host of presentations with a list of what he sees as four positive indicators for the economy and for the construction climate:
1. The powerful influence of green; 
2. The growth in virtual design and construction; 
3. The power of immigration; and 
4. The new president in office.

Penny Stacey is a contributing editor for USGlass.

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