Hopes for Early Turnaround Faded with Realities of 2010
The construction market has yet to see signs of recovery from the current recession, but it’s coming next year, according to a forecast released by McGraw-Hill Construction.
Robert Murray, vice president of economic affairs, foresees an 8% increase in total construction starts to $445.5 billion in 2011. Much of that prediction is based on the single-family housing market finally seeing substantial growth, with starts rising 27% to $126.7 billion.
Similarly, multifamily housing starts are predicted to rise 24% to $23.6 billion.
Still, that prediction comes with some caveats.
Murray says that in order for the construction market to realize those gains, employment will need to show growth, banks will have to loosen lending, and state and local government will need to contain their budget difficulties.
“Assuming that takes place, an 8% gain for construction is realistic, but if things go wrong and we slide back into recession, then it will be another year of flat to declining activity for construction starts,” he adds.
The forecast was announced during McGraw-Hill Construction’s 2011 Construction Outlook conference in Washington, D.C., Oct. 29.
Among non-residential building sectors, Murray predicts that next year commercial construction starts could pull out of a three-year decline, during which contracting volume dropped 62%.
That would be good news to anyone involved in this long-suffering market segment.
McGraw-Hill Construction (the parent of ENR magazine, ENR.com and Mid-Atlantic Construction) calls for a 16% gain in starts up to 44.9 billion, which would counter the 17% decline realized in 2010. Office, hotel, warehouse and store activity are all expected to see an uptick in 2011.
Institutional building continued to suffer in 2010, dropping 7% to $103.6 billion.
Although health care remained flat, the educational and public building sectors both declined. McGraw-Hill Construction forecasts that the institutional market will flatten out at $102.7 billion in total starts, as the health-care sector makes gains and the declines in the educational and public buildings sectors ease.
Among the transportation sectors, Murray predicts that construction starts on highways and bridges will retreat by 4% to $57.6 billion, as stimulus dollars run out and many state and local governments continue to struggle with their budgets.
Mass transit, which has made tremendous gains in recent years, will see starts begin to level off, rising 3% to $7.5 billion. That level remains historically high—nearly double the $3.9 billion spent in 2008.
The current year was notable for the slowing of the declines of prior years.
McGraw-Hill Construction estimates that total construction starts will drop 2% to $411 billion in 2010, marking the fourth year in a row of decline.
This year’s slump in activity counters expectations that 2010 could mark a turnaround for the industry.
Last year, McGraw-Hill Construction forecast that construction starts could climb 11% in 2010, up to $466.2 billion. However, Murray says that despite a promising first quarter, the economy remained weaker than expected and produced limited job growth.
“That early stage of recovery has, in effect, been pushed back due to the stall that we had in the overall economy this year,” he says.
Much of that softness was felt in the single-family home sector. Although the sector was expected to see a 30% jump in starts this year, it will close with modest growth of 6% to $100 billion.
While the stimulus did have an impact on the construction industry, Murray notes that many of those gains were offset by cuts to transportation projects made by revenue-strapped state and local governments.