Special Report: 10.23.2009

Posted by TED Magazine on Friday, October 23, 2009

McGRAW-HILL'S 2010 CONSTRUCTION FORECAST (part one of two)

It's not horrible, but it won't make you run out and buy drinks for everybody

 

By Joe Salimando 

 

When attending a McGraw-Hill Construction "Forecast" event -- which I've done most every fall for a lot of years -- no one makes a mistake about what's going on. There are a number of very excellent speakers. They are handouts. But the main event is the annual "official" forecast. AND: You can't have that document until the forecast is delivered (and finished). And while I certainly will share with you a good deal of what Bob Murray, the chief economist at MHC, said and provided . . . you really need to pay $495 to see the whole thing and get the whole picture.

 

Having said that, here's what's IN the picture: A not-so-wonderful forecast. The value of contracts for new construction in 2006, the way MHC figures it, totaled to $689.6B [officially, the Census Bureau reported a figure over $1 trillion for that year, but that's got a lot of smaller projects in it and isn't really a comparable number].

 

So that was 2006, $689.6B. For 2010, the prediction is for $466.2B in contracts for new construction. What about 2009? The estimated value, when it's all totaled up, is thought to be $418.9B.

 

If you're keeping score at home, here's how the sequence went or will go, according to MHC: 2007, down 7% from 2006. 2008, down 13% from 2007. 2009, -25% from 2008. And next year up 11%.

 

BUT, as with anything else, the devil is in the details. And I don't believe I go too far in saying that the details -- well, they suck.

 

In brief: All of the increases in 2010 will be in single-family housing (up 32%), multi-family housing (up 16%), and public works construction (up 14%). Everything else is even to down.

 

Unfortunately for readers of this and the follow-up on Murray's forecast that I'll write for posting on Monday Oct. 26, the electrical construction industry -- and the electrical distributors and manufacturers who serve it -- do a lot better, volume-wise, in the non-residential construction area than they do in resi.

 

 

 

Some Non-Res Details

 

MULTIFAMILY HOUSING -- 452,000 units built in 2007. 140,000 units to be built, Murray estimated, for 2009. A 14% bounce, to 160,000 units, next year (yes, the figure above says MF housing is up 16%, but that's dollars).Here's what this looks like, over 25 years, in a graph (provided by MHC):

 

 

Is that frickin' ugly, or what? Omit the left-hand side of the photo and just look at what's happened since 2006. Yuck! And the rest of the graphics that follow look (for the most part) . . . just as beautiful.

 

STORES & SHOPPING CENTERS -- in the years I've attended construction forecasting events (held by MHC and others), I've heard -- repeatedly -- that retail construction follows housing. We might well be "over-stored" in the U.S., but the retail stores follow people. When there's a new housing development, new stores will follow. Where a bunch of new developments spring up, big shopping malls are created from nothingness.

 

 

Here's the tale from the numbers Murray provided: 2007, 314 million square feet. 2009 = 100 million. Next year, 95M.

 

WAREHOUSES -- well, if you're not building stores, maybe you don't need to build warehouses? That's part of the story. Also, we're not importing as much as we had been. That 'splains why the graph below is so damn hard to look at. Murray's data show 255M sq. ft. built in 2007 (up 15% from '06) . . . and 73M in 2009, when the year is over (down 61% from '08). Next year: a 4% decline in new warehouse space, to 70M.

 

 

OFFICE BUILDINGS -- first, an IMPORTANT comment: I discovered, by listening to Murray, that MHC includes data centers here, in office space. Well, it had to go somewhere. But that certainly is important, and I am humiliated to have never heard or seen (or known) that before. So in 2007, when MHC's official office-space number is 219M sq. ft., some untold amount of data centers is in there. And it's in 2010 as well, when a 9% decline from this year will put us at 73M sq. ft.

 

 

The thing about the huge decline in office space construction was that -- I am certain of this -- I heard back in 2005-2006-2007 that THIS TIME, office space construction just could NOT fall off a cliff. After all, we had avoided the overbuilding of previous booms (see the year-2000-2001 peak). So we couldn't fall off a cliff this time, could we?

 

Well . . . maybe we could.

 

HOTELS -- While this graphic looks a lot like the others, the fall here isn't so bad in square feet built -- at least, not in gross square feet. In 2007, the figure was 85M sq. ft. 2008 came in at 79M sq. ft. Then, a 56% fall in 2009, followed by a predicted 14% decline into 2010, and you're left with 30M sq. ft.

 

 

HEALTH CARE -- the fall here isn't so drastic, either. Total square feet -- 2007 = 104M, 2008 = 110M, 2009 = 70M, and next year the forecast is for 72M, which is an UPTICK. I saved it for last not because of the positive spin (although it is nice to end this piece on an up note, isn't it?) . . . but because, as we all know, an awful lot of electrical and datacom "stuff" goes into health care facilities -- medical offices, clinics, and hospitals.

 

 

Murray presented data showing that the $ value of construction starts for clinics and nursing homes fell 8% in 2008 and 33% (year-to-date) in 2009. By contrast, hospitals had a good 2008 (up 26%) but were suffering worse this year (down 44% year-to-date). Why? Tight credit conditions were hitting hospital chains hard, he said. And there is always a sharp pause in a construction sector when federal policy toward it is under debates (as there certainly is now in health care, isn't there).

 

Next time: Murray's take on 2010 housing, plus a look at the regional breakdowns as provided by MHC. And more.