American Construction Sector to Remain Steady for
2003, According to Presenters at Reed Construction
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
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
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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