December 24, 2001—At the recent 5th Annual North American Construction Forecast conference, Bill Toal, chief economist for the Portland Cement Association, presented the overall U.S. forecast, projecting that U.S. construction spending will have increased 1.3 percent by year-end 2000, experience a slight dip (1.9 percent) in 2001, and then continue on an upward track, rising 1.3 percent in 2002. He pointed to technology and the “new economy” as the chief drivers of the industry, adding that the wave of new technology is having a far bigger impact on construction and the economy than the current administration. Spending on information processing equipment, he pointed out, has expanded by 20 to 30 percent over the past few years, going from “next to nothing” in the 1970s to two percent of the gross domestic product (GDP) in the early 1990s to its current level—three percent—in 2000.
Toal expects a near five percent growth in GDP by year-end, with 3 to 3.5 percent growth in 2001. Looking only at the U.S. office building industry, Ray Torto, principal and managing director of Torto Wheaton Research, suggested that the environment for building investors and owners is still good, with vacancy rates low and tending lower. As of the third quarter of 2000, he pointed out, vacancy rates were hitting 8.1 percent nationally, closing in on the historic lows of 1985, when vacancy rates were just over five percent. Looking at select markets, San Francisco, San Jose, New York, Seattle, Boston and Washington D.C. have some of the lowest vacancy rates nationwide, at under five percent.
Rent growth in technology-oriented submarkets is also an important statistic to consider, Torto said, with many of the same cities showing extremely high submarket rent growth from 1995 to 1999. San Jose/Sunnyvale, for example, showed 90 percent submarket rent growth. Boston/Harvard Square was up 76.4 percent; Washington, D.C./Reston, 47.6 percent; Austin/Northwest, 52.1 percent, Chicago/West Loop, 51.4 percent, Los Angeles/Beach Cities, 61 percent; and San Francisco/South Beach, 155.6 percent.
In summarizing, Torto recommended cautious optimism. “Happiness equals expectations minus reality,” he joked.
-Based on a report from BOMA.org
