As the economy emerges from the steep, extended recession of 2007-2009 several factors indicate a gradual, tempered recovery. Most economists expect a sustained recovery and, in recent weeks, the financial markets seem to be signaling that there could be barriers to a smooth recovery, However, events like the Gulf oil spill and the European financial crisis imply a more tentative road to recuperation as these events are expected to be long-term impediments to growth rather than immediate ones.

COMMERCIAL/INDUSTRIAL CONSTRUCTION

All major markets within the commercial sector – retail buildings, office buildings, and hotels and motels – are forecasted to experience substantial decline through the remainder of 2010.

The retail sector will continue to contract as the economy treads an uncertain path. The inability of the residential construction market to decisively emerge from its prolonged slump continues to impact the retail construction market.

The office sector will continue to suffer from an uncertain economic recovery, easing of corporate profits and payroll declines, and rising office vacancy rates. 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 during the lag between recovery in employment and corporate profits, and in office construction.

The hotel sector continues to be adversely impacted by a lackluster travel and tourism market. New construction in this sector is expected to be held back as occupancy rates continue to be high in the wake of the recession, when both businesses and consumers substantially curtailed their travel budgets. Moreover, liquidity issues will continue to ease the pressure on hotel occupancy rates, further reducing new supply in this sector.

The decline in the multifamily residential sector, comprised of condominiums and rental units, will persist through 2010. The high rise condo market will continue to decline, as indicated by lower sale prices and higher levels of inventory.

The manufacturing sector will continue to be hampered by modest capacity utilization rates. Until capacity utilization rates top eighty percent, expansion in manufacturing construction is unlikely to occur.

INSTITUTIONAL CONSTRUCTION

The education sector is expected to have a moderate decline in 2010 as weak state revenues impact K-12 construction and stagnant endowments affect college and university spending. State and local governments, the primary drivers of educational building construction, continue to be distressed by the tough financing environment and lower tax receipts.

Looking at the healthcare sector, several projects are likely to be deferred under the current economic environment. The potential for diminished profits due to higher borrowing costs and escalating healthcare costs is expected to dampen healthcare facility construction.

The public building sector is likely to remain relatively stable. Armories/military buildings and police/fire stations will experience some growth but detention facilities construction is expected to decline.

GREEN CONSTRUCTION

According to new research published by Environmental Leader, a leading trade publication, commercial green building is projected to grow at an 18 percent annual rate until 2015. This could potentially create a substantial increase in employment in the construction industry.

Although we are not quite out of this economic slump, we have a fair idea about the bottom of the cycle. Since we have been concentrating hard on getting a glimpse of the bottom we have not had the time to fathom how or when we are likely to climb out of this once we have reached the bottom. Most indicators seem to predict that the market will not experience any broad, significant growth until 2012, which is unlike what we have experienced in many of the past nonresidential construction cycles.

For further market insights link to Kawneerosphere-Nonresidential Construction Market Musings.

Sources: McGraw-Hill Construction, American Institute of Architects, Wells Fargo Economics Group, Global Insight and Blue Chip Economic Indicators