KANSAS CITY, MO — Bruce Moorman, a construction industry authority and partner at Grant Thornton, an accounting, tax, and business advisory firm, sees mixed results for the construction industry in 2003, with interest rates holding the key.


“This area is still very strong and probably will continue well into 2003,” said Moorman. “The primary reason for this is the low interest rates. Multi-family housing has been strong, but has actually dropped off in the past year, as there is some overcapacity. The low interest rates that helped single-family housing actually hurt multi-family housing, as people have been able to purchase single-family housing and have not stayed in multi-family housing."


“This area has certainly become softer,” said Moorman. “There probably won't be much activity in this sector until late in 2003. Warehouse construction is continuing to be low as there's plenty of warehouses around. In today's environment, the need for warehouse space has gone down because of just-in-time delivery systems. Instead of sitting in warehouses, products are going straight from the manufacturer or from the supplier to the company that ordered them.”


“Vacancies are climbing across the nation, with a significant amount of excess office space everywhere,” said Moorman. “Rates are plummeting, and I don't think you'll see much construction in this area until at least late 2003, or later, depending upon what happens in the economy.”


“There continues to be a significant amount of government construction,” said Moorman. “The federal government has passed several bills providing funds for work on highways, airports, military bases, and other government facilities. Government construction is what's holding up the industry.

“But there is a black cloud in all this, as the states have to match the federal government funding on federal highways. Many states are having significant budget shortfalls, and their projections for 2003 are even direr. States cannot come up with the matching funds for highway construction programs, which creates some concern about how the programs will move forward.

“Local governments are not as depressed as state governments, so there should be some construction at the local government level in streets, highways, and infrastructure.”


“This sector had been hot for a number of years, but that is no longer the case,” said Moorman. “There seems to be an adequate amount of capacity, and while there are still some plants being built, it is because they've been on the drawing boards for some time. There probably will not be any new activity until late in 2003, or even 2004.”


“Hospitals and other stand?alone facilities have seen some increase over the last year or so, particularly in the area of research and manufacturing type facilities related to the pharmaceutical industry,” said Moorman. “But in terms of hospitals and so forth, that has slowed, as there appears to be an adequate number.”


“As there are still some funds available for facilities at colleges and universities, I expect it to be a relatively strong market in 2003,” said Moorman.

Publication date: 12/09/2002