Retail, office buildings the best bet

Retail and office fare best in commercial construction decline through 2010.

Source: Jim Haughey, Reed Construction Data

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According to a report by Reed Construction Data , most of the decline in construction spending in this building cycle has already occurred for commercial buildings. A 4% to 5% further decline is expected from August through next winter. The decline is expected to be less for retail and more for hotels. An expected resumed rise in project cost at year-end, mostly for materials, will halt the decline in nonresidential construction spending in current dollars in about six months but the decline will extend into the summer measured inflation adjusted dollars. There will not be a significant increase in construction activity until late next year.

The recession began early in the retail market. Peak spending in this cycle was August 2007. The 40% drop since then has been across all retail sectors but especially deep for retailers with very income elastic products. This includes restaurants, auto dealers, and the retailers that typically locate in the larger shopping malls. By contrast, retail construction spending has held up much better for retailers with relatively income inelastic products. This includes big box discounters and the retailers that typically locate in the smaller neighborhood shopping centers.