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News / Past Articles

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 .

About Reed Construction Data

Reed Construction Data is a leading worldwide provider of quality construction information products and services designed to advance the businesses of its customers with timely, accurate and actionable project, product, and cost data. Reed Construction Data collects, adds value to and distributes construction industry information through print and online references and resources for architects, engineers, contractors, manufacturers and other professionals in the construction industry. Founded in 1975, Reed Construction Data is an active participant in the construction industry, partnering with its customers and industry associations to meet customer information needs. For more information, visit www.reedconstructiondata.com or call 1-800-322-6996.
Reed Construction Data is a division of Reed Business Information, a leading provider of critical information and marketing solutions to business professionals and a member of the Reed Elsevier Group plc.

Courtesy of EIFS Alliance


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