2011 Outlook

In 2011, the outlook for commercial construction looks decidedly better than it did during the early days of 2010. Manufacturing activity, consumer spending and corporate profits have experienced some growth. And despite the lingering effect of the sovereign debt crises in Europe, the high unemployment rate and an uncertain housing market, the nonresidential construction market is expected to grow towards the end of 2011.

All major markets in the commercial sector, retail buildings, office buildings and hotels are forecasted to decline in 2011. The retail sector is expected to recover during the second half of 2011, but the inability of the residential construction market, a primary driver of retail construction, to decisively emerge from its extended slump might delay the recovery or moderate the rate of growth.

The office sector will continue to languish due to high unemployment rates, an uncertain regulatory environment and fluctuations in office vacancy rates. The large amount of unoccupied office space is expected to be a significant drag on new construction in the office market as tenants upgrade to existing high-quality space and refrain from developing new facilities.

The hotel sector is expected to be adversely impacted by the soft business and leisure travel markets. Most construction in this sector is likely to be renovations of existing facilities in the upscale segment. New construction will also likely be impeded by financing issues, with banks reluctant to underwrite projects while hotel occupancy rates are still falling.   

The multifamily residential sector, comprising condominiums and rental units, will likely continue to decline during the first half of 2011, but is forecasted to bottom-out this year, after declining for the previous four years.

The manufacturing sector will continue to fall with another double-digit decline expected in 2011. Modest capacity utilization rates are restraining new construction in this sector and until capacity utilization rates top eighty percent, expansion in manufacturing construction is unlikely.

The education sector is expected to be relatively stable in 2011. However, weak state and local government revenues, the primary drivers of educational building construction, will continue to impact school construction and stagnant endowments will affect college and university spending.

The healthcare sector is also forecasted to be relatively stable in 2011. Higher borrowing costs and escalating healthcare costs are expected to dampen investments in new healthcare facilities. However, given the aging population and medical facilities, the medium- and long-term prospects in this sector remain positive.

The public building sector is most likely to experience a high single-digit decline in 2011. With the impact of the government stimulus funds waning, new spending in this sector faces an uncertain future in the short-run. 

Best,
Andy Nag