Crystal ball: More construction to come

August 11, 2010

Decreasing vacancy rates and infrastructure improvements will continue to drive North American construction, according to economists who recently made presentations at CMD Group's North American Construction Forecast for design and construction professionals.

With the national vacancy rate for downtown office buildings at just 6.7 percent-and the rate for industrial properties down to 6.5 percent-Hugh Kelly, chief economist with New York City-based Landauer Associates Inc., also pointed out that most industrial real estate transactions are occurring in the 20,000- to 100,000-sq.-ft. range. Similarly, most retail sector activity involves floor areas of less than 75,000 square feet.

"While most institutional investors are still buying big spaces, the greatest number of [industrial] deals are in this [smaller] range," said Kelly. "It's a hotbed of private owners involved in just-in-time delivery requiring smaller warehousing spaces."

Kelly also linked infrastructure investments to real estate activity in the distribution and storage sector, predicting that port improvements in New York and Oakland will increase warehouse space demand. Similarly, said Kelly, highway improvements will affect industrial real estate activity in regional hub cities.

Overall, North American construction is projected to post a 1.3-percent increase in 2000, a 1.9-percent decrease in 2001 and resumed growth of 1.3 percent in 2002, according to Bill Toal, chief economist with the Portland Cement Association, Skokie, Ill.

Ray Torto, principal and managing director for Torto Wheaton Research, Boston, concurred that in the next couple of years, construction will remain strong.

"Construction will heat up, returning to the level of the 1980s," Torto noted. "Construction loans are really picking up and are already back to their previous highs."

         
 

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