As the economic recovery gradually gains traction in 2011, the outlook for nonresidential construction looks decidedly better than it did during the early days of 2010. Manufacturing activity, consumer spending and corporate profits have experienced some growth. And, despite the lingering effect of the sovereign debt crises in Europe, the high unemployment rate and an uncertain housing market, the nonresidential construction market is expected to grow towards the end of 2011. However, the uptick is likely to come too late to register an overall increase for the year and the latest forecasts indicate a modest decline in nonresidential construction in 2011.

Leading indicators of nonresidential construction such as AIA’s Architectural Billings Index and McGraw-Hill’s Construction Starts point toward the approaching trough of the construction cycle. But structural impediments like the large inventory of vacant houses, high levels of personal and federal debt, and rising energy and material costs could restrict robust growth once the market emerges from the bottom of the cycle.


COMMERCIAL/INDUSTRIAL CONSTRUCTION

All major markets in the commercial sector – retail buildings, office buildings and hotels/motels – are forecasted to experience single digit decline in 2011.

The retail sector is expected to recover during the second half of 2011, but the inability of the residential construction market, a primary driver of retail construction, to decisively emerge from its prolonged slump might delay the recovery or moderate the rate of growth.

The office sector will continue to languish due to high unemployment rates, fluctuations in office vacancy rates and an uncertain regulatory environment. Office vacancy rates, a reciprocal indicator of office construction, are still forecasted to peak in 2011. The large amount of unoccupied office space is expected to be a significant drag on new construction in the office market as tenants upgrade to existing high-quality space and refrain from developing new facilities.

The hotel sector is expected to be adversely impacted by the soft business and leisure travel markets. Most construction in this sector is likely to be renovations of existing facilities in the upscale segment. New construction will also likely be impeded by financing issues, with banks reluctant to underwrite projects while hotel occupancy rates are still falling.

The multifamily residential sector, comprising condominiums and rental units, will likely continue to decline during the first half of 2011, but is forecasted to bottom-out this year, after declining for the previous four years.

The manufacturing sector will continue to fall with another double-digit decline expected in 2011. Modest capacity utilization rates are restraining new construction in this sector and until capacity utilization rates top 80 percent, expansion in manufacturing construction is unlikely.


INSTITUTIONAL CONSTRUCTION

The education sector is expected to be relatively stable in 2011. However, weak state and local government revenues, the primary drivers of educational building construction, will continue to impact school construction and stagnant endowments will affect college and university spending. With a substantial number of school facilities requiring repair, renovation projects are expected to show a modest increase in 2011.

The healthcare sector is also forecasted to be relatively stable in 2011. Higher borrowing costs and escalating healthcare costs are expected to dampen investments in new healthcare facilities. However, given the aging population and medical facilities, the medium- and long-term prospects in this sector remain positive.

The public building sector is most likely to experience a high single-digit decline in 2011. With the impact of the government stimulus funds waning, new spending in this sector faces an uncertain future in the short-run.


GREEN CONSTRUCTION

According to research published by Environmental Leader, a leading trade publication, commercial green buildings are still projected to grow at double-digit annual rates till 2015. This could potentially create several new employment opportunities in the sustainable building construction segment.

Nonresidential building construction is expected to reach the bottom of this construction cycle in 2011, with the possibility of slight growth towards the end of the year. Still, most leading indicators seem to point that the market will not experience any significant growth till 2012.