Nonresidential Construction Growth Continues in 2007


Construction will experience healthful economic conditions in 2007, with nonresidential construction supporting its growth.

Spending on nonresidential construction expanded at a 16% annual rate, during the year ended September. Since then, growth has slowed to 11% to 12% and will slow to 8% by the end of 2007, Reed Construction Data (RCD) reported. The slowdown is expected to occur because of the plunge in residential building last year and the decrease in overall economic growth from 3.5% to 4%, to 2.5% to 3%.

Reed Construction Data also detailed growth in specific areas. Office construction surged last summer by 11% over spring levels. Office rents and vacancy rates have improved during the last year, but have yet to reach 2001 peak rates. RCD predicts that most office expansion is yet to come.

Manufacturing construction spending jumped 20% in 2006, but construction volume, considering inflation, is one-third lower than its 1998 peak. Last year, expansion was increased 62% in the chemical industry and 21% in the electronics industry. Spending declined 27% in the transportation equipment industries. Production activity is concentrated in the area between Boston and Chicago, in the Gulf chemical centers and in Los Angeles area.

Education construction spending increased 6.5% last year, with all gains posting toward the end of the year. Growth is expected to rise 10% in 2007 as state and local government finances improve. The bulge of demographic enrollment is in ninth grade, and spending is expected to decrease for K-8 schools. Projects in the Northeast and Midwest primarily are focused on renovations and replacements, while projects in the south and west primarily are focused on adding classroom space.

Health care construction spending growth doubled to 15% in 2006 and is expected to stay at this pace through 2008. In October, spending increased 47% from the same period last year for nursing homes and other special care facilities. Spending also was up 18% for hospitals. On the other hand, spending decreased 17% for nonclinical, nonresidential health care buildings. Reed Construction Data expects these trends to continue throughout 2007.

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