Straight A's for educational sector in first quarter

August 01, 2002 |

Educational construction spending has increased every year since 1983, a boast no other building market segment can make. In spite of the prevailing macroeconomic environment, growth for this institutional sector has continued at an extremely healthy pace, in contrast to every other market segment with the exception of health care. The combination of favorable demographic trends, aging educational infrastructure and the policy priorities of the federal government should ensure reasonably solid gains throughout the next five years.

Public and private ed fare well

An estimated $61.9 billion of construction was completed on educational facilities during 2001, an increase of 12.7% over the total for 2000. This was nearly the same as the growth rate (13%) recorded from 1999 to 2000. Through the first quarter of this year, spending in this sector was 19.5% higher than through the same period in 2001.

Publicly funded school construction composed more than 79% of the educational spending total during 2001. After increasing by 11.8% from 1999 to 2000, public school construction spending rose by an even stronger 13.2% during this past year. Privately funded school construction spending during 2000 grew by 17.7% after a scant gain of only 0.9% in 1999, and grew by another 11% during 2001.

Dwindling tax revenues threaten

Though it hasn't materialized, as 2002 began, the potential existed for a significant slowdown in the growth rate for the educational sector. Underlying demand from demographic trends and federal initiatives remains strong, but state and local budgets are under increasing pressure. Tax revenues have declined sharply in most states and metro areas in the immediate aftermath of recession. And a larger share of these increasingly scarce tax dollars will have to go to public safety spending as long as there remains a credible threat of further terrorist attacks.

So far, however, that potential weakness hasn't manifested itself in real dollar terms during 2002, although there's little question that some future construction projects have been delayed or put on a slower track, in recognition of public budget shortfalls. Public educational construction spending increased at a 20.6% annualized rate through the first third of this year, almost twice that recorded during 2001. And privately funded educational construction work was 15.4% greater during the first quarter of 2002 than during the same period in 2001.

Although the rate of growth for educational building construction should be slower — by one-third to one-half — during the second half of this year than during the first half, there is no real danger that gains in either publicly or privately funded projects will disappear.

The National Center for Education Statistics (NCES) estimates that school enrollments will increase by another 3.4% nationwide from 2001 to 2011, so the long-term prospects for sustained annual increases in educational construction spending remain bright. Although NCES projects enrollments at the elementary and secondary school levels to peak during 2005, enrollments at degree-granting, post-secondary institutions are expected to continue to escalate without interruption during the next 10 years.

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