Ron Glaser, vice president of preconstruction services for Walton Construction, was recently quoted in the St. Louis Post-Dispatch “Ask the Experts” column on the impact of the slowing housing market on commercial construction:

“So far, commercial construction has not been affected by the slowdown in the housing market nearly as much as residential construction. Many sectors of commercial construction are moving forward with new projects. Plus, many of the traditional residential specialty contractors are beginning to compete in the commercial construction market.

In the last six months, we’ve seen subcontractors that had been focused on residential work for the last several years starting to bid on commercial projects. The cost of construction materials is beginning to stabilize from the increases we have seen over the years. The prices of items such as lumber and gypsum drywall actually are on the decline.

We are optimistic that the economic stimulus operations being put in place as a result of the slowing housing market also will boost the commercial construction market and turn around residential construction.”

Source: St. Louis Post-Dispatch

Non-residential construction remains active in spite of the residential market slowdown and credit crunch, according to the Turner Building Cost Index, published by leading national construction company Turner Construction.

The index shows a continuing shortage of skilled labor and uncertainty about the availability and cost of materials, putting upward pressure on construction costs over the next several quarters.

At the same time, a decline of nine points in the Architecture Billings Index in February indicates tougher times ahead for both design firms and contractors. The downturn could indicate a noticeable slowdown in commercial construction projects coming online over the next nine to twelve months, according to the American Institute of Architects (AIA).

Some AIA members, however, are still reporting strong business from a billings and demand standpoint.

The one bright spot in commercial construction continues to be the institutional sector, which is showing positive conditions for school, hospital and government construction.

Source: Building Design+Construction

Perhaps the most accurate word for predicting the construction economy in 2008 is “tumultuous,” according to Ken Simonson, the chief economist for the Associated General Contractors of America (AGC).

Simonson reports that some nonresidential segments such as energy will grow, while others such as lodging will slow or decline. Diesel fuel, copper and steel prices will increase but a slumping demand for gypsum and other residential construction products may help moderate building costs.

Labor accounts for roughly half the cost of a construction project, and shortages mean higher wage. Simonson predicts that some crafts may experience labor shortages, but workers in the residential specialty trades will be plentiful.

Overall, Simonson predicts overall nonresidential building cost increases of less than 6% and wage increases from 4.5% to 5.5%.

Nonresidential construction starts were down 13.1% in January as compared to January 2007, according to Reed Construction Data. Monthly starts have been slowing since October 2007 and were down down 8% from December 2007

In 2007, nonresidential starts were up 10.6% as compared to the 2006.

The slowdown in nonresidential construction starts is expected to continue into the summer and then recover enough to end 2008 at about the same level as 2007. Commercial building starts are expected to be impacted most by an abrupt slowdown in Gross Domestic Product in the first half of 2008, according to Reed.

Statistics show that the education and health care sectors are both weakening, while starts in public safety buildings and cultural/religious facilities have not declined. Construction starts for heavy/engineering projects were down 13% from last January.

Source: Reed Construction Data

Top hot building markets for AEC firms in 2008 include healthcare, higher education, K-12 schools and commercial office buildings, according to the Building Design+Construction chief economist and ZweigWhite, a leading management consulting firm for the industry. Highway and bridge construction also will be strong in 2008.

The economists also reported that the cost of building materials and construction wages were up in the last months of 2007, factors that could affect project costs. Labor and materials also are in relatively tight supply.

Source: Building Design+Construction 

Architectural billings showed a healthy score in December, according to the Architecture Billings Index (ABI) reported by the American Institute of Architects this week. The index shows a nine to twelve month lag time between architectural billings and construction spending, so it’s a good outlook indicator for construction.
The December ABI was up a fraction to 55.4, from 55.3 in November, marking the 34th straight month with a positive score. That’s the longest run in the history of the survey, which began in 1995.

Source: Building Design+Construction