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    2011 Predictions Wrong: Nonresidential Construction Lagging

    Press Release: February 16, 2011

    Economists are pointing to a halting recovery in the nonresidential construction sector, holding back on their earlier predictions of a recovery this year. The Zweig Letter, ZweigWhite’s weekly management journal, reported in its January 14 issue that economists who follow the design and construction industries now are saying that a recovery is not expected until 2012.

    According to at least one survey held by the American Institute of Architects (AIA), the U.S. nonresidential construction activity will decline slightly this year, but is expected to recover in 2012, led by the hotel and retail sectors. The institute’s semi-annual Consensus Construction Forecast projects nonresidential construction spending levels to drop by 2% this year, but an increase of 5%, adjusted for inflation, is expected by 2012. The projected decline marks a deteriorating outlook. A similar survey in July 2010 pointed to a 2011 recovery.

    “The key factors that have prevented an accelerated recovery include historically low lending rates for real estate projects, the lingering effects of general overbuilding and an unfavorable bond market that has hampered the ability for municipalities to get the requisite funding to build new schools and hospitals,” Kermit Baker, AIA chief economist, told The Zweig Letter. “Conditions should improve later this year and gain momentum as we move into 2012, particularly for hotel, retail, and office building projects.”

    However, economist Jim Haughey, director of research and analytics with Reed Construction Data, is a bit more optimist about a recovery in the sector.

    “Looking at the recent trends,” Haughey said in the Jan. 14 issue of The Zweig Letter, “nonresidential (construction) starts have picked up quite sharply from the falloff at the height of the financial problems last year…. The nonresidential construction pipeline is gradually being rebuilt. In recent credit trends, we’ve seen that investors have started buying bank real estate loans at deep discounts, and by deep, I mean as much as 50% or 60%, in some cases. This is providing the capital for a very small expansion in new project loans.”

    The AIA projects construction of industrial space to fall 11.8% this year, but rise slightly in areas like health care, church and recreational facilities.

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