Moving in the right direction
At the AHR Expo in late January, a number of exhibitors asked me if I took the show’s strong turnout as a good sign the economy finally is coming to life. While I wouldn’t go so far as to base an economic forecast on two days at a trade show, I was encouraged to see so many people clogging the aisles of Chicago’s McCormick Place.
Unscientific though it may be, equating the show’s attendance with building activity supports the forecast found in consultant FMI’s “2012 U.S. Markets Construction Overview.” Along with identifying trends that will affect trade contractors - which we discussed last month - FMI predicts beginnings of a recovery in several market sectors.
Overall, FMI expects the construction industry to grow 6% in 2012. If your glass is half full, this outlook is rosy compared with the 2% growth in 2011. If your glass is half empty, this forecast falls short of the 10% to 12% increases you grew accustomed to seeing until a few years ago.
The best news may come in residential construction where FMI does predict 12% growth. This number includes stronger multifamily construction and home improvements as well as single-family housing. And although the double-digit growth sounds good, the report cautions that the housing market only now is picking itself up from the bottom.
On the nonresidential side, FMI breaks down its 2012 construction forecast into sectors. These include:
Education. Construction is expected to increase 4% after a 13% drop in 2010 and a 2% dip last year. Much could depend on whether Congress passes the American Jobs Bill or the education part of it. Up to $30 billion could be available for modernizing public schools ($25 billion) and community colleges ($5 billion). Greener schools that use energy and water more efficiently will continue to be a strong trend with more universities committed to building LEED-certified facilities.
Health care. While the 3% growth forecast for this year seems small, the health care construction sector remains at a historically high level. A large percentage of the activity taking place is for renovating and modernizing existing facilities. Helping to shape these projects are the country’s aging population, new technologies and increased demand for single-bed hospital rooms.
Sewage and waste disposal. Wastewater construction is expected to increase at a faster pace than the overall economy through 2015 after a drop of 2% last year. Government mandates will drive much of this work. The nation needs to replace or upgrade 16,000 wastewater systems that discharge more than 850 billion gallons of untreated sewage into surface waters each year.
Water supply. After a 2% dip in 2011, construction in this sector is predicted to rise 4% this year. The emphasis on green buildings and water efficiency will continue, but we also must pay attention to systems that provide clean water. These two issues are not mutually exclusive.
Government failure to replace old systems causes us to lose 7 billion gallons of clean drinking water to leaking pipes each day. Green building practices, such as controlling storm water runoff to increase ground water supplies, will become the norm in new construction.
Office buildings. With office construction being so dependent on employment, it will take several years until there is enough employment growth to spur significant new construction.
That being said, office construction is expected to increase slightly this year after a 32% drop in 2010 and another 5% decline in 2011. One trend to watch this year is that tenants will continue to “trade up” by upgrading to nicer offices. Tenant-friendly green buildings will play into this trend.
Lodging. Green buildings certainly are playing a role in this sector where the major activity in hotels over the last year has been renovating existing properties. Retrofits and remodels that help hotels save energy and water are becoming commonplace.
Lodging construction has declined about 55% since its high in 2008. It dropped 16% in 2011 and is expected to increase 4% in 2012.
Amusement and recreation. Construction activity in this sector is expected to grow 4% this year. Casinos were hard hit during the recession with a number of projects being canceled, postponed or winding up in court. Stadium construction, on the other hand, has been strong with a number of new ballparks opening and others in the planning stages. Funding on these projects may be difficult as politicians balance spending tax money with the potential to create jobs.
While recovery this year will be slower than anyone would like, construction activity in these sectors indicates we’re moving in the right direction. So, just maybe the crowds in the aisles at the AHR Expo will turn out to be a good sign after all.