Nonresidential Construction Dips 3% in August
The volume of nonresidential building construction declined 3% in August to an annual rate of $163.6 billion as the effects of the residential market slump continue to impact commercial construction, according to McGraw-Hill Construction.
On an unadjusted basis, total nonresidential building constructed was down 37% from January to August 2009, with the commercial construction segment down 52% year-to-date, institutional construction down 17% and manufacturing construction plummeting 74%.
“The positive development is that the rate of descent has eased from the severe declines witnessed in late 2008 and early 2009,” said Robert Murray, vice president of economic affairs at McGraw-Hill Construction.
In the commercial construction categories, warehouse construction declined 7% in August. Hotel construction was up 1% and retail store construction climbed 15%, though the level of activity in both categories continues to be depressed.
“Nonresidential building still faces considerable constraints, such as mounting vacancies, tight bank lending standards and eroding state fiscal health,” Murray said.
August declines in institutional building construction included public buildings, down 20%; churches, down 24%; and amusement-related projects, down 35%. Educational building construction was up 9% for the month.
Commercial builders trying track to gauge when the industry will improve should monitor a a combination of general economic statistics — the financial market, jobs and consumer confidence — but focus primarily on local markets, said Bernie Markstein, NAHB vice president of forecasting and analysis.
“It’s so localized at this point. Don’t get dragged down by all the headline economic news,” he said.
“You can monitor the gross domestic product (GDP) rate, but know that it is a backward looking indicator. It tells you what happened last quarter,” he said. “Follow the local residential market and how commercial projects are getting financed. That will give you a better idea on where you’ll be in next few months. Right now, obtaining financing is critical for any project. Securing that financing has become 10 times harder than in the past, despite low interest rates.”
Markstein said that while the commercial sector follows residential construction trends by one to three years, its rebound in certain areas is not solely dependent on a housing revival. In contrast to the residential market, commercial construction did not become overbuilt or involve an abundance of questionable loans — aside from retail projects.
“In the really hard hit states there are other factors to look at,” said Markstein. “For example in Phoenix, even if the housing market hasn’t turned around, it’s still a good place to do business. So, if there’s a need for office space, they’ll still build offices and then house people in existing homes.”
States with traditionally strong travel markets, such as Florida, may also see commercial pick up ahead of residential construction, Markstein said.