North American
Construction Sector to Remain Steady for
2003, According to Presenters at Reed
Construction Data
Conference
As the economy
continues to struggle, the North American
construction industry remains one of its
strongest sectors, reported presenters at
Reed Construction Data's North American
Construction Forecast conference, held
October 16 at the National Press
Club.
Ken Simonson, chief economist of
Associated General Contractors, expects
the next several months to be very uneven
for construction. Any construction
related to consumer activity should
remain strong and business-related
construction will pick up gradually in
2003 if the economy continues to
strengthen. However, government-funded
projects are likely to diminish once
current jobs are completed.
Simonson reported that there are two key
indicators of construction industry
health: employment and value put in
place. He says both factors are
relatively flat in construction
nationally. Supporting this view, the
Census Bureau reported that nationwide
construction that was put in place for
the first eight months of 2002 was
virtually unchanged from the same period
of 2001. The seasonally adjusted figures
for August, $830 billion, were just 0.4%
below the total for July. From August
2001 to August 2002, public construction
rose by 8%. Private nonresidential
buildings fell by almost 19%.
In addition to Simonson's forecast, other
construction industry analysts and
economists presented forecasts on the
individual sectors of the construction
industry as well as the outlook for
Canada and Mexico. Following are
excerpts; complete coverage can be found
online at www.nacf.com .
Commercial Real Estate Outlook -- Ray
Owens, vice president and senior
economist for the Federal Reserve Bank,
said net absorption, which had been
negative at about 30 million square feet,
is now working its way back. Improvement
is being seen in class "A" space. Looking
at recent absorption rates verses total
supply, Owens also noted that there is a
13-year supply of sublet space on the
market. The amount being absorbed
currently is quite low and rising and the
amount available is being capped somewhat
by a sharp decline in construction, so
that ratio is likely to flip in a
favorable correction quite soon. Vacancy
rates are moving up, but are still
several percent below what was seen
during the early 1990s. Owens says that
even with a sluggish economic recovery,
prospects for improvement in the
commercial market appear in place for
2003.
Residential Construction Outlook -- David
Seiders, chief economist for the National
Association of Home Builders (NAHB)
reported the housing sector has done
extremely well in a tough economic
environment. He said the best bet is
funds rate stability through third
quarter 2003. Long-term mortgage rates
are currently at 6%, which is the lowest
since the mid-1960s. Seiders said he is
forecasting rates to continue to average
that in fourth quarter 2002 and then rise
gradually in 2003 and 2004.
Canadian Outlook -- Roger Grant, vice
president of Reed Construction Data, said
the Canadian housing market is at a
10-year high with close to 200,000
starts, which is well above a more
sustainable rate of 160,000. The forecast
for housing construction in 2003
anticipates a moderate decline of about
10% to 173,000 starts. In the
non-residential sectors, institutional
and engineering have been relatively
stable, while the commercial and
industrial sectors suffer from a high
office vacancy rate of 12%. Based on a
forecast of general strength in the
Canadian economy, Grant expects all
non-residential sectors to make a
comeback in 2003.
Mexican Outlook -- The Mexican economy is
expected to grow at a 4% rate in 2003
fueling construction market growth of
over 54% in 2003, according to Grant.
Inflation rates are declining and are
projected to be under 5% this year and
moving below 4% next year. Deficits are
also declining indicating an overall
stable economy. Grant reported that more
than 50% of the total construction value
in Mexico is in housing. With an increase
in U.S. funds becoming available for
economy housing mortgages, economy
housing is projected to grow steadily in
2003 with other sectors of construction
expected to see growth as well, though at
lower rates.
Retail/Industrial/Office Construction
Outlook -- Glenn Mueller, managing
director, Real Estate Investment
Strategy, Legg Mason, Inc. and professor,
Johns Hopkins University Real Estate
Institute believes there will be stable
but modest demand growth going forward.
Supply is slowing down, creating market
equilibrium, which is good for the
economy. We will return to a growth phase
in late 2003.
Major Projects and Trends: A Panel
Discussion
Hugh Hardy, FAIA, founding partner, Hardy
Holzman Pfeiffer Associated, cited growth
in restoration of historical areas of the
city and many individuals and groups are
beginning to use community structures as
entertainment outlets.
Henry Mann, chairman/CEO, Perkins and
Will, said the higher education market
looks good specifically in the area of
teaching labs and academic research labs.
In addition, with the many aging urban
school systems that exists, there is
plenty of opportunity in replacement
construction projects across the
country.
Leo A. Daly, III, chairman/CEO, Leo A.
Daly, noted that there are three basic
areas where construction is going to pick
up in 2003: aviation, federal government
and healthcare. Particularly, in
aviation, he indicated that once the
federal government completes its study on
air security measures, the industry must
change its approach to construction in
this arena.
Scott Simpson, co-chairman, The Design
Futures Council and director/partner,
Stubbins Associates, said speed of
delivery from design to build is a
growing trend in the industry. He sees
upcoming growth in academic medical
centers and biotech markets.
Rod Kruse, Partner, Herbert, Lewis, Kruse
and Blunck, observed that in the Midwest
market there is growth in single-family
homes, sports arenas and municipal
libraries.
William Geuerin, deputy chief architect,
U.S. General Services Administration,
said there was growth in courthouse
construction due to capacity issues. With
homeland security becoming a concern,
there is a significant border station
construction program coming up for GSA in
2003.
The NACF conference was moderated by Jim
Cramer, chairman, Greenway Consulting and
editor, DesignIntelligence.
For more construction forecast
information from Reed Construction Data's
North American Construction Forecast
speakers, please visit www.nacf.com .
Each year, Reed Construction Data's
annual North American Construction
Forecast conference features leading
experts, economists and analysts from the
U.S., Canada and Mexico who discuss
conditions affecting building activity
and opportunity throughout the NAFTA
region. Speakers provide a
sector-by-sector analysis, along with
economic indicators for the construction
industry and its many related businesses.
More information about the conference can
be found at www.nacf.com .
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Courtesy of EIFS
Alliance