U.S. Commercial Construction to Drop 16% This Year, Report Says

Posted on Bloomberg:

July 13 (Bloomberg) -- Construction spending on offices, retail centers and hotels is likely to fall 16 percent this year and 12 percent in 2010, more than previously forecast, the American Institute of Architects said.

Rising unemployment and reductions in business spending prompted the Washington-based institute to cut its outlook from January, when it predicted non-residential construction spending would drop 11 percent this year and 5 percent in 2010.

“We’ve had a really rocky six months in the economy and in the construction sector,” Kermit Baker, the institute’s chief economist, said in a telephone interview. “People are seeing a real tough environment out there and not a lot of incentive to invest in projects.”

Sentiment among U.S. consumers dropped this month as the country’s unemployment rate approached 10 percent, according to a Reuters/University of Michigan preliminary index. The economy probably shrank at a 1.8 percent rate from April to June, according to a Bloomberg News survey. Nonresidential construction tends to lag behind the economy, Baker said.

Spending on office buildings is forecast to sag 22 percent this year and 17 percent in 2010, while retail construction probably will sink 28 percent this year and 13 percent in 2010, the architects group said.

Looking for Signs

“Why do you build new office buildings? You need to see job numbers pick up,” Baker said. “Why do you build new retail centers? You need to see consumer spending pick up.”

Hotel construction is likely to decline 26 percent this year and 17 percent in 2010, the institute said. Industrial spending is forecast to dip 0.8 percent this year and 28 percent in 2010, according to the report.

The Consensus Construction Forecast uses projections from sources including Global Insight Inc., Moody’s Economy.com, the Portland Cement Association and management consulting firm FMI Corp. The report forecasts U.S. construction spending, adjusted for inflation, over the coming 12 to 18 months.

To contact the reporter on this story: Daniel Taub in Los Angeles at dtaub@bloomberg.net.