Retail builders spending at slower pace as demand weakens

December 01, 2001 |

Through the first nine months of this year, an estimated $46.3 billion was spent in the retail building sector. This total was 1.5 percent greater than during January-September 2000, but a much lower level of growth than the 8.0 percent construction spending increase recorded during 2000.

Nevertheless, retail-sector construction activity showed surprising strength during the first half of 2001, at a time when consumer spending was slowing dramatically. Although retail vacancy rates nationwide have risen during the past year, and there's ample evidence of overbuilding in several large metropolitan markets, continued big-box and grocery-store-anchored strip mall development pushed spending higher right into the summer of this year.

Market gains have evaporated in recent months, however, and demand for new retail space will probably get weaker still before it gets stronger again sometime during the latter half of 2002. Between August and September of this year, the seasonally adjusted annualized rate of retail building construction declined 2.3 percent. September's spending pace was 10.2 percent lower than it had been during June of this year. It is unlikely, however, that construction spending in the retail sector will plunge during the current recession.

The next few years will likely see the retail sector become more selective. Activity during the final three months of 2001 will be very subdued. Consequently, the current forecast looks for retail construction spending to end this year 2.1 percent below the year-2000 total.

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