Despite meek pullback, retail keeps ringing up sales

December 01, 2002 |

Through the first eight months of this year, an estimated $37.2 billion was spent on retail buildings (all commercial developments except for office buildings and hotels/motels) for new construction or remodeling, renovation, or retrofitting existing space. This represents a relatively modest 6.9% decline from total spending recorded during the same period in 2001. Total spending on office and lodging commercial development had declined by a much steeper 27.8% over the first two-thirds of this year, making retail a welcome oasis in a desert of lost opportunity.

Figures for 2001 show that total retail construction spending was essentially flat (-0.1%) from the year-2000 total. Not bad, at least when viewed in the context of the deep decline in overall commercial building development last year. But construction spending for retail buildings had increased during every one of the prior eight years.

In fact, spending gains from 1993-2000 averaged 9.6% a year — strong, steady growth, with annual swings not nearly as wide as for the more volatile office and lodging sectors of commercial work.

Recently, however, retail construction has begun to show more of the strain of wavering consumer confidence, slower household income growth, and unemployment. Between July and August of this year, the seasonally-adjusted annualized rate of retail building construction work completed declined by 1.4%; this August's spending pace was about 12.4% lower than it was a year ago.

So, the market appears to be weakening steadily at year's end. Given overall consumer anxiety, demand for new retail space will probably get weaker still before it gains strength again sometime in the middle of 2003.

Consequently, our current forecast looks for retail construction spending to end this year a modest 6.6% below the full-year-2001 total. While some improvement should be evident by next summer, total 2003 retail construction spending will probably be up by only a point or two from this year's somewhat disappointing level.

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