Properties Magazine January 2013 : Page 23
National Construction Outlook 2013 McGraw-Hill Construction sees shaky start, then 5% increase in New Year A fter the steep decline of 2007-2009, the construction industry has shown a few glimmers of recovery, but overall there’s not yet been sufficient traction to say that renewed expansion has taken hold. As reported by McGraw-Hill Construction, new construction starts in 2010 edged up 2%, followed by another 1% gain in 2011, and the current year is headed for a 5% increase to $458 billion. This still leaves the volume of total construction starts 32% below the 2005 peak on a cur-rent dollar basis, and down about 50% when viewed on a constant dollar basis. The modest gains experienced during the past two years have in effect produced an extended bottom for construction starts, in which the process of recovery is being stretched out. The pattern of construction starts seems to be in a “balancing act,” where gains for a few project types are offset by declines for other project types. The upturn for multifamily housing has been joined in 2012 by a strengthening sin-gle-family market. Several commercial project types, notably hotels and ware-houses, have picked up the pace, and electric utility construction will reach a new record high. However, the institutional building sector has weakened considerably during 2012, adversely affected by tight federal, state and local budgets, while public works construction has experienced further erosion. The backdrop for the con-struction industry remains the fragile U.S. economy. Real GDP in the second quarter of 2012 grew just 1.3%, and for all of 2012 the GDP increase is estimated at 2.1%. The employment statistics have reflected this hesitation, as growth in the second quarter fell to just 67,000 jobs per month, before bouncing back in the third quarter to 146,000 jobs per month. The main obstacle to stronger growth for the U.S. economy is the pervasive sense of uncertainty, which has dampened business investment and hiring. Earlier in 2012, at least some of this uncertainty was related to concerns over the potential spread of the European debt crisis, but by midyear the anxiety about the impend- ing “fiscal cliff” (the expiring tax cuts combined with reduced federal spend-ing) became dominant. Along with the uncertainty created by the 2012 presi-dential election, many firms placed plans for investment on hold. The fiscal cliff posed a significant downside risk to the near-term pros-pects for the U.S. economy and the A U.S. economy that avoids recession in early 2013 will allow several positive factors to benefit construction. Interest rates are very low, and lending standards for commercial real estate loans are easing. construction industry. In May, the Congressional Budget Office warned that allowing existing policies to take effect in early 2013 could cause the U.S. economy to slide 1.3% during the first half of 2013. Now that policymak-ers have reached some agreement to soften the impact of the spending cuts as well as maintain some of the Bush-era tax cuts. The U.S. economy will be shaky at the outset of 2013, but it’s hoped that efforts to cushion the fiscal cliff will allow some of the uncertainty to diminish. Real GDP growth for all of 2013 will still be a tepid 2.2%, but the economy should improve after a weak start to the year. A U.S. economy that avoids reces-sion in early 2013 will allow several positive factors to benefit construc-tion. Interest rates are very low, and lending standards for commercial real estate loans are easing. Significantly, market fundamentals for several proj-ect types are strengthening. This includes rent growth for multifamily housing, increases in revenue per available room for hotels, and retreating vacancy rates for warehouses and offices. In this environment, it’s fore-cast that new construction starts for 2013 will climb 6% to $484 billion, a rate of growth not much different than the 5% gain estimated for 2012. The following are the main points by sector for the 2013 construc-tion market: • Single-family housing will grow 24% in dollars, corresponding to a 21% increase in units to 615,000 (McGraw-Hill Construction basis). The positives for single-family hous-ing have become more numerous – the pace of foreclosures has eased, home prices are stabilizing, and mortgage rates are at record lows. • Multifamily housing will rise 16% in dollars and 14% in units, marking healthy percentage gains yet slower growth than what took place during 2011 and 2012. Improved market www.propertiesmag.com 23
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