Sustained growth ahead for commercial sector

February 01, 2004 |

When the economy went south in 2001, it took the commercial sector along for the ride. Signs of life began to appear last summer as the commercial construction spending jumped 5%, only to ease to about 2% during the fall. The lull will be brief, however, as the sector enters a period of sustained growth during the next two years. Commercial spending is expected to increase 8% rise this year and another 13% in 2005. This surge follows a three-year period (2001-2003), which saw the sector decline 10%. But before that, the sector was going gangbusters, doubling from 1992-2000.

Drug stores constituted the biggest drag on the market in late 2003, declining 20% in November. Food stores were off 15% from July through November. Auto dealers and parking were down 12% during the same period. These declines do not represent sustainable trends, although very little expansion is expected in 2004-05 for both car dealers, with vehicle sales expected to be steady but not spectacular, and food stores, which are still losing market share to big-box discounters.

Restaurants and bars enjoyed the biggest gains from July to November of last year, up 50% from a war-related dip earlier in the year. Multi-retail buildings experienced an 8% gain during the same period.

The forecasted pickup will initially be dominated by renovations needed to bring idle space back into use. Small buildings will be built to serve recently constructed residential areas. The momentum created from these areas will be sustained by above-average growth in consumer spending as the economic recovery matures. The 5-6% sales gains in the Christmas shopping season have already begun this process. With goods prices down from the year before, this represented a 6-7% rise in product volume.

Retailers expect another mini spending boom in a few months when taxpayers receive the second half of the 2003 tax cuts from their annual tax returns. This is the tax rate cut for the January-June 2003 period.

More expensive space will add to the spending increase in commercial work, as will the move from discount to premium goods by more confident shoppers.

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