Crystal ball gazing for construction

April 20, 2000
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Look for the construction market to slow down a bit in residential and retail sectors in order to keep the entire economy healthy — that is, not too strong — according to Thomas R. Loy and Bradley K. Walker, both with FMI’s Market Research Group.

“Inflation, like a cold, is much more difficult to recover from if you wait until the symptoms develop,” they explain in FMI’s Construction Outlook report. “So Dr. Greenspan is being proactive and fighting the things that might cause inflation, such as very low unemployment. He is fighting low unemployment by increasing interest rates to cool the economy and put a few more people out of work.”

According to Loy and Walker, the strategy is working. “In the first half of 1999, single-family home construction was 12.5% above the same period in 1998 after adjusting for inflation. In the last half, however, 1999 was only 3.6% ahead.”

They predicted that in 2000, residential construction will be 2% ahead of 1999, an increase of $6.6 billion; and nonresidential building construction will be up 5%, or $13 billion.

Residential Trends

“There is no doubt that inflation is on the increase,” they state. “However, although Greenspan will win the contest, consumers will put up a good fight.” Therefore, look for single-family construction to increase 2% ($4.3 billion) in 2000.

They predict that “multifamily housing will pick up a little as single-family construction declines, when the intention to be a first-time homeowner becomes the willingness to settle for an upgraded apartment.” Look for multifamily housing construction to grow 6% ($1.8 billion).

Residential improvements, a segment that keeps many hvac contractors busy, the analysts predicted to increase “by a scant 1%, or $0.5 billion.”

Commercial trends

Schools are still a hot market. FMI’s report states that “The educational sector will continue its current trend with a seventh consecutive year of growth in 2000.”

Look for publicly owned schools to grow faster than those that are privately owned. New school and education construction will rise another 11%, or $3.2 billion, in 2000, Loy and Walker predict.

“Privately owned office building has seen a boom over the past several years,” they state. “Low vacancy rates and increasing demand for modernized facilities ensure that 2000 will be another strong year, with 7% growth,” or $2.3 billion.

Watch out for still more growth in the hotel-motel sector. However, new retail construction, which the authors note is strongly tied to residential developments, will probably start to decline in 2000. Look for just 1% growth in the coming year.

Finally, the report notes that “nothing works the same as it used to.” The authors advise contractors to “re-examine your basic assumptions, your strategies, your tactics, and your relationships. Use all your abilities, your creativity, your intuition.”

The full report is available from FMI; 919-787-8400.

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