Non-residential construction to continue growth in 2008

Single-family residential construction was expected to finish 2007 down 25% from 2006 and should rise modestly by 2% in 2008, FMI Management Consultants predicted in its annual 2008 U.S. Markets Construction Overview. The non-residential sector will continue its strong growth in 2008, FMI said, led by the healthcare and educational markets.

Single-family residential construction was expected to finish 2007 down 25% from 2006 and should rise modestly by 2% in 2008, FMI Management Consultants predicted in its annual 2008 U.S. Markets Construction Overview. The non-residential sector will continue its strong growth in 2008, FMI said, led by the healthcare and educational markets.

The residential construction sector continues to suffer through a severe correction, FMI noted. Over the 10-year period of 1995 to 2005, the sector expanded at an annualized growth rate of approximately 9.4%. By 2005, residential construction swelled to more than $650 billion, accounting for 57% of all U.S. construction. That ratio is expected to fall to 45% for 2008. The housing correction took hold during early summer 2006, and the near-term outlook for single family construction remains dim.

Housing starts in August fell to an adjusted annual rate of 988,000, the lowest level in 12 years according to the National Association of Homebuilders. Home prices have slipped for 12 consecutive months according to the U.S. Department of Commerce. Total residential construction fell 2% in 2006 and is expected to slide another 16% by 2007 year-end. Single family construction put in place will finish the year at $310 billion, down 25% from 2006.

FMI’s forecast for single family construction value in 2008 is up 2%, with a note, however, that this is on a current dollar basis that includes inflation. Starts are forecasted to slip again slightly in 2008. Multi-family construction will reach $65 billion by 2007 year-end and $67 billion in 2008, gains of 3% and 4% respectively. Residential improvements are expected to grow by 1% in 2007, reaching $163 billion, and then to $169 billion in 2008.

The non-residential sector remains a bright spot, although it is apparent that a protracted slowdown in residential construction will impact some contractors in non-residential markets. This will occur as project financing becomes more difficult to obtain and infrastructure projects for new residential communities are tabled or canceled altogether.

The lodging construction segment is set for steady growth through 2011 after two years of healthy performance in 2006 and 2007. Previous forecasts called for more room starts in 2006 than in any year since 2000. In fact, the year 2006 proved to be a breakout year for the lodging construction segment with an increase of 52% after struggling to gain solid footing during the post-9/11 doldrums. FMI forecasts a 7% increase in lodging construction to $25.5 billion in 2008, followed by another 7% increase in 2009 to $27.3 billion.

Office markets around the country realized solid revenue gains in 2007. FMI forecasts continued gains for 2008. Expenditures for office construction will increase 10% in 2008, to a value of $68.8 billion. This upward trend will likely continue at a moderate pace through 2011. The commercial construction market includes buildings and structures used by retail, wholesale and selected service industries, including the automotive and food and beverage industries.

The commercial market, which has experienced positive annual growth since 2004, will continue this trend through 2011. Commercial construction will make up 19% of the nonresidential construction total through 2011. Commercial construction put in place will increase 21% from $95.8 billion in 2008 to $116.2 billion in 2011.

The healthcare construction market includes hospitals, medical office buildings and special care facilities, such as nursing homes. Of the 11 non-residential construction segments, the healthcare market will experience the strongest growth through 2011. It will experience doubledigit annual growth each year, for the next four years. Healthcare construction put in place will increase 43% from $53.8 billion in 2008 to $76.9 billion in 2011.

The education construction market is expected to lead the industry in total spending into the next decade. FMI expects the education construction market to grow 9% to 10% annually through 2011, and reach $130.3 billion in put in place construction by 2011.

Similar to retail construction, where “retail follows rooftops,” religious facility construction in the U.S. is steadfastly tied to residential construction and population growth. The explosion of homes built from 2002 to 2006 will drive the need for additional places of worship nationwide. During 2007, $8.1 billion in religious facility construction was put in place, a 1% gain over 2006. FMI forecasts a slight increase, or $8.3 billion, will be invested in religious construction during 2008, followed by an additional 3% increase in 2009.

The public safety market includes correctional buildings such as prisons and police stations and other public safety structures such as fire and rescue stations. FMI’s forecast for public safety construction put in place anticipates solid growth through 2011, increasing from $12.8 billion to $18.0 billion. The expected average growth of 9% per year through 2011 constitutes a total increase in public safety put in place construction of $5.2 billion, or 41%.

Founded in 1953 by Dr. Emol A. Fails, FMI, headquartered in Raleigh, N.C., provides management consulting and investment banking for the worldwide building and construction industry.

Additional information is available at www.fminet.com.