November 8, 2002—In its annual forecast to industry leaders, McGraw-Hill Construction predicted that construction growth in 2003 will decline by 1 percent. Robert Murray, the firm’s chief economist, cited several contributing factors: Low demand for commercial space; potential rising interest rates; and reduced tax revenues eventually impacting public works and institutional buildings.
Murray said that the downturn for commercial building has turned out to be more severe than first expected. It was generally believed that lenders and developers had been careful to avoid the excesses of the 1980s, but the surging high-tech sector in the late 1990s lifted demand for office and warehouse space in a number of major markets. With the bursting of the tech bubble, that demand has dried up, and a substantial amount of sublease space has been put back on the market. In addition, commercial building has been hampered by tighter bank lending standards, rising insurance costs, and a “wait-and-see” approach towards investment decisions by the real estate community.
Here are some other predictions from the forecast:
- Public works construction will drop 3 percent, after rising 5 percent in 2002.
- Electric utilities will continue to retreat from the record high reported two years ago, with the value of construction starts down 24 percent in 2003.
- Income properties will post a slight 2 percent gain in dollar volume, due to an expected increase for multifamily housing.
- The rate of decline for commercial building will be much less severe in 2003, setting the stage for renewed growth in 2004.
- Institutional building will edge up 1 percent in dollar volume, although square footage will be down 2 percent. School construction will continue to settle back from its record high reached in 2001,while healthcare facilities should at least equal this year’s heightened contracting.
- Manufacturing building is expected to rise 6 percent from its dismal 2002 level, helped by modest improvement in capacity utilization.
For more information, contact McGraw-Hill Construction.
