Despite all of the variables in
the economy that can effect
construction, optimism for
a strong rebound in the new
year remains for the North
American construction industry.
Industry analysts and
economists gathered to present
their outlooks for 2004
and beyond at Reed
Construction Data’s North
American Construction
Forecast conference held at
the National Press Club on
Oct. 15, 2003.
According to Gene Sperling,
former national economic
advisor and director of the
Economic Council, the fore
casting community is very
bullish about the U.S. economic
recovery. Many predict
3.5 percent to 4 percent
growth going into the first
half of 2004 and others see
things moderating. Sperling,
who characterized himself as
a blaséist, is a little more cautious.
“I’m not in the pessimist
camp, but I’m certainly
not overly optimistic
like so many others — just
cautious,”said Sperling.
There was no question that
the characterization has been
a mild recession, but the
United States has had a very disappointingly
mild recovery, according to
Sperling. He said looking at the five
quarters between the second quarter of
2002 and the first quarter of 2003,
there were three quarters below 1.5 percent
growth. As well, the economy continues
to be in a period of job loss nearly
22 months after a recession. All of
this signifies that there has been considerable
uncertainty that has continued
to plague the U.S. economy.
Edward Sullivan, chief economist of the
Portland Cement Association, like
many of the other more optimistic
economists Sperling mentioned, sees
the economy continuing to gain
strength in 2004. Although, Sullivan
said the construction market is going
to be down this year by 1 percent to 1.5
percent and doesn’t expect much
growth next year in terms of real construction.
He suggests that the market
will be flat in 2003 and 2004, but at a
very high level. 2005 will bring the
United States an assumption of growth
in construction. Moving forward, as
interest rates begin to rise, residential
will no longer be the leader. Non-residential
will become the leader.
In addition to Sperling and Sullivan’s
forecasts, 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. What follows
are excerpts; complete coverage
can be found online at www.nacf.com.
Predictions for Individual Sectors
Retail/Industrial/Office Outlook.
Glenn Mueller, managing director, Real
Estate Investment Strategy, Legg
Mason, Inc. and professor and investment
strategist at Johns Hopkins
University Real Estate Institute, suggests
going forward, office demand is
coming back. Currently, the projection
is that by 2005 the United States should
return to the long-term average of 2
percent growth and see some new
demand coming along, while hotels
remain depressed at a 35 percent vacancy
rate. He also mentioned that retail
continues to do well in most regional
markets, and with continued urbanization,
the United States could expect
to see more neighborhood community
centers in the near future.
Federal Reserve Regional Outlook.
Ray Owens, vice president and senior
economist for the Federal Reserve
Bank, says signs of economic pickup
combined with sharp curtailments of
new construction have laid the foundation
for more solid performance
going forward, but risks remain. Much
of the improvement in commercial real
estate may be tied to improvement in
the labor markets, and although there
are some encouraging signs in the labor
markets, continued sluggish growth
could limit an eventual pickup in
demand growth. He says the need for
space may not be as rapid as what we
saw after the last recession in the 1990s
but nevertheless, the turnaround in net
absorption is powerful evidence that
the conditions are improving.
Residential Outlook.
David Seiders,
chief economist for the National
Individual Sectors Association of Home Builders, reported
that housing has been a heroic performer throughout the entire recovery,
and Seiders believes the United States.
can retain the levels of home sales and
housing production that have been generated
in recent times, which have been
quite strong. However, he said he
would be surprised if we could continue
to post growth in these areas without
getting reasonable job growth. He
is looking for this part of the sector to
fall into place very soon because the 30-
year mortgage rate is now heading
toward 6.75 percent, compared to historic
lows of 5.2 percent in June. On
other fronts, residential remodeling is
performing very well, according to
Seiders. He says this $180 billion market,
as recorded in the first quarter of
this year, is growing. He expects a 4 percent
to 5 percent growth in this sector
in 2003 and 2004. This pace will hold
steady in 2005.
Canadian Outlook.
Roger Grant, vice
president of Reed Construction Data,
said residential construction, like that
of the United States, is very strong with
more than 205,000 starts expected this
year, spurred by low mortgage rates.
Housing, similar to many of the construction
markets in Canada, is fairly
cyclical and appears to be near a peak.
Some return is expected in the office
building market in 2003 and out into
2004. And the one bright spot in commercial,
as in the United States, is the
retail market. Actual 2003 starts are
expected to be near 16 million square
feet, which is up significantly from last
year’s forecast of just over 9 million
square feet. This appears to be a very stable
and strong market driven by consumer
spending and the strong residential
market. In total for industrial,
commercial, engineering and institutional
construction, strength is building
in these sectors in the latter half of 2003,
and it is expected that this trend will hold
going into 2004. As a result, Canada will
have stronger construction growth in
2004 and continue to lead the other North American countries in this regard.
Mexican Outlook
The Mexican econ-omy
is expecting total growth in con-struction
for 2004 to be in the 3.5 per-cent
to 4.5 percent range. There is a
strong demand for educational facilities,
and the Fox administration has committed
to redirect more funds to educa-tional
construction. Some growth is
being seen, but modestly in 2004.
Engineering construction is also projected
to expand. There is quite a pent-up
demand for infrastructure in Mexico.
Currently, there are some reforms that
are helping to secure some of the needed
electrical generation and road construction.
In 2004, there will be growth
in the 3 percent to 4.5 percent range.
Overall, 2003 construction growth
should end up in the 1.5 percent to 2.5
percent range. Look to the infrastructure
and nonresidential building sectors to be
the strongest growth areas of the Mexican
construction market in 2004.
Major Projects and
Trends: A Panel Discussion
Gordon Mills, chairman, CEO, Durrant,
sees much opportunity for growth in
2004, exceeding that of 2003. Criminal
justice, community colleges and health-care
are a few of the strongest market sectors
expected for 2004. Business area
transformations that are being seen
include integration of design and delivery,
where there is close collaboration of
everyone involved in the process to aid
in the transfer of knowledge.
Charles Rodenfels, senior vice president,
URS, noted that government buildings,
such as the Herbert Hoover building and
the Pentagon, are receiving a great deal
of attention in terms of renovations and
improvement of infrastructure. This
appears to be a growing trend going forward,
and federal funding is becoming
available to support these renovations.
Gary Haney, design partner, Skidmore
Owings & Merrill, said they have focused
on diversity and pursuing projects that
would allow them to exhibit their strength
in design and technical excellence. Last
year, 27 percent of their volume was financial,
corporate mixed-use projects. Airport
and transportation accounted for 24 percent;
government projects 24 percent;
health and science was 13 percent; education
is now 7 percent, and he expects
this to double next year. He reported that
tall buildings continue to be in demand.
Currently there are developments in
process to make these buildings safer
including structural improvements to
resist progressive collapse, responsive
building skins, wider stairs, concrete cores
and improved fireproofing.
Richard Tomasetti, co-chairman and
managing principal, Thornton – Tomasetti,
reported that today they are seeing
more consideration for making high-rise
buildings in urban environments with
mixed uses. These combined projects are
offering new opportunities for material
specialists because the industry is seeing
more use of mixing the appropriate
amounts of concrete and steel in both residential
and office buildings. Combining
these elements in office buildings is motivated
by security concerns.
Clark Davis, vice chairman and CEO of
HOK, observed that in many cases,
speed of design and delivery are now
more important than cost in many of the
projects they are undertaking. They have
remained active in the hospitality business
and also have had ongoing work in
the retail and mixed-use commercial
business. He reported that things continue
to be slow for corporate offices and
interiors. HOK’s backlog in the middle
of the country has doubled since the
beginning of this year. Regionally,
Southern California is strong, but the
East Coast and the bay area are a little
slower to recover.
Michael Schneider, executive vice president
of Parsons Brinckerhoff, said the
three Cs they are facing as trends are
commoditization, consolidation and
commercialization of the practices in the
design, engineering and architecture
industry. The position of the design and
construction industry is becoming
stronger, and clients are not only looking
for one-stop shops but also for ease
of shifting risk or shifting responsibility
— not only in the design and construction
stage but also in the operations
and maintenance stages.
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