Economist Forecasts a Bright Year for Nonresidential Construction

Nonresidential building construction has begun to expand, and the next three years should be good, said Jim Haughey, Ph.D., director of economics for Reed Business Information. Haughey delivered his forecast last week at Reed Construction Data’s 10th annual CEO Breakfast, held in conjunction with the Construction Specifications Institute’s national show in Chicago.

Haughey pointed to a number of economic indicators that bode well for the U.S. economy in general and for the construction industry in particular. For instance, GDP growth has been and should continue to be above average for some years to come. Moreover, business inventories are leaner than they ever have been in the U.S., he said—an important incentive to growth, while the cost of money remains relatively low. “Twelve months of credit-tightening by the federal reserve has raised short-term rates,” said Haughey, “but has raised long-term rates very little.”

With respect to the nonresidential construction market in particular, Haughey pointed out that the commercial office market looks good, because the spare building capacity built up in the last three years is finally disappearing. Office construction is expected to increase 9.7% during 2005, while the commercial market generally should advance 4.8%.

One of the hot markets for 2005 will be hospitality, or more specifically lodging, with a projected 25.1% increase. One driver in this market, suggested Haughey, is the growing strength of the Euro leading to more visitors from Europe.

One final note is that much of the expansion of the next few years will be driven by the private sector. Less money is coming from the federal government, and expansion has been strongest overall in the private for-lease market (lodging, office, retail, warehouse) due to an unusually favorable commercial real estate financial market.

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