Nationally, spending on nonresidential construction will rise modestly, with increases primarily in the warehouse, manufacturing, hotel, hospital and power segments, with a possible small gain in higher education, Associated General Contractors of America's Chief Economist Kenneth D. Simonson recently told members of AGC of Greater Florida in Orlando. He also expects strong growth in multifamily apartment construction during the second half of the year. 

"Total construction spending will be up between 3% and 7%, the first gain in four years, but that will be eaten in part by material costs," he says.


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AGC's Ken Simonson addresses the AGC of Greater Florida recently.


Looking further out to 2012 to 2016, Simonson anticipates continued growth, with spending up between 6% and 10%, including higher costs. But, he adds that some of those material costs will be passed through in higher bids.

"The thing that is keeping it from growing is the abundance of single-family homes for sale and the reluctance people have to buy or their inability to qualify for mortgages," he added. However, that is leading to more rentals. Starts on new multifamily projects were up 7% nationwide in April 2011, compared with April 2010. Real estate investment trusts are breaking ground on new apartments. Areas close to expanding military bases are benefiting from the creation of new multifamily units.

Without an influx of people, retailers will not build new stores, keeping that sector depressed. Simonson explained that many big-box retailers are moving into smaller, existing locations to avoid the cost of building new, which may create some opportunities for renovations. Hoteliers also are modernizing their properties as revenue per available room has grown, particularly at the luxury level.

New nonresidential starts are down 6% from a year ago, with a few bright spots, including highway construction as stimulus money continues to support work; public transportation; and sewage and water treatment projects. Private higher-education jobs are starting back up as endowment values have increased; but public education projects--K-12 and university--will remain down.

"In Florida, there was a huge drop off in in-migration," Simonson said.

Simonson reports many hospital projects are in the planning and permitting stages. "I think this will be one of the better growth markets through 2012, particularly here in Florida," Simonson said. 

Manufacturing, which suffered a big slide, is experiencing an upturn in the last two months. Simonson said after interruptions in air freight from Europe related to volcanic ash and deliveries from Japan after the earthquake, companies are in-sourcing, purchasing products made in the United States.

Plenty of vacant office space in the region is preventing that segment from moving forward. Even though job growth has improved, with steady private-sector gains for the past 15 months amounting to 2 million jobs added, hiring still has a long way to go to make up for the nearly 8 million jobs lost.

With the new private sector jobs, personal expenditures rising and seven quarters of economic growth, the normal expectation would be for construction to rebound, but that's not happening.

"The recession proceeding the growth was so deep, steep and long, we still have a huge amount of vacant office, retail and hotel space in many markets, and tremendous problems with state and local government budgets," Simonson says.

All that grim news does not bode well for people in the construction industry. Florida experienced steady construction job growth from 1992 until 2006, but the last five years, it lost all of those gains and more and is at the lowest employment total since the records began in 1990. The unemployment rate in construction in April was double that for all industries.