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Institutional construction: The saving grace of 2002

Institutional construction: The saving grace of 2002

By Daryl Delano, RBI Economist | August 11, 2010
This article first appeared in the 200301 issue of BD+C.

At an estimated $220.2 billion, the value of nonresidential building construction spending (for both new and remodeling/retrofit/reconstruction work) during the first nine months of 2002 was 8.1% less than during the same period of 2001. Spending on commercial buildings was down steeply across the board, while construction activity on industrial buildings plunged.

There is just no way to sugarcoat what's been happening in these privately funded categories of nonresidential work — the market stinks.

The bright spot in the nonresidential building universe continues to be the institutional sector, about 70% of which is publicly funded.

Let's take a look at last year — and try to forget it as quickly as possible.


Construction of offices, retail establishments, and hotels saw total spending decline by 18.3% through September 2002 year compared to the first three-quarters of 2001. Retail construction spending through the first nine months of 2002 was a comparatively modest 7.4% below the January-September 2001 total, but hotel/motel spending was off 27.8%, while spending on office buildings was 28.1% lower than during the first nine months of 2001.


Spending on manufacturing plants and warehouses had declined even more precipitously during the past 12 months ending last September. Through nine months of 2002, construction work on these kinds of buildings was worth a breathtaking 45.1% less than the total for January-September 2001. The seasonally adjusted annualized rate of spending during September 2002 was still running 50.1% below the September 2001 level, so there's as yet no real sign of recovery in this market segment.


The growth rate for the construction of nonresidential buildings outside the commercial and industrial sectors descended from its lofty double-digit rate for the first four months of 2002 to a "mere" 9.3% over the entire first three-quarters of last year. This was in dramatic — and heartening — contrast to what was happening throughout the commercial and industrial market sectors.

Through the first nine months of 2002, the institutional sector continued to defy most of the negative forces impacting the income-producing property segments of the nonresidential construction market. January-September construction spending for the sector as a whole totaled $115.6 billion.

In sum, "institutional" remains the Energizer bunny of the construction market: 2002's 9%-plus growth rate represented an acceleration from the strong 7.2% gain recorded during 2001.

Health facilities construction gained a stellar 14.0% annual growth through September 2002, after this subsector recorded only modest growth of 3.2% between 2000 and 2001.

Education construction spending gains accelerated as well during the first three-quarters of 2002. After growing by 11.8% during 2001, the value of work completed on public and private schools through September 2002 was running 14.1% ahead of the January-September 2001 pace.

"Other" public buildings — correctional facilities, government administrative buildings, courthouses, public housing, etc. — have served as a more accurate barometer of the impact that deepening fiscal problems at the federal, state, and municipal levels are likely to have on all aspects of publicly funded construction work as we move into 2003. During January-September 2002, total "other public buildings" construction spending was up a modest 4.4% from the nine-month-2001 level of $27.4 billion.

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