Consulting-Specifying Engineer - January 2009 - (Page 44) 2009econo Access to credit has improved at the beginning of this year, so the projected further decline in nonresidential construction is primarily due to weaker space demand. BY JIM HAUGHEY, Reed Construction Data, Waltham, Mass. The commercial construction boom that began in the spring of 2004 ended in the middle of last year due to the worldwide collapse of the credit bubble and accompanying recession that quickly cut demand for additional space. The latest building cycle was stopped by problems in the economy several years short of the usual end due to overbuilding. In comparison, the previous building boom of 1994 to 2000 persisted for 6½ years. So, the downside of the building cycle is likely to be relatively short, unlike the 3½-year real estate bust experienced earlier in this decade. The construction outlook abruptly soured in the second half of 2008. Spending for nonresidential construction expanded at a 12% annual pace from July 2004 to July 2008, then growth dropped to less than a 6% pace through October 2008, with declining spending now expected through late 2009. Private commercial construction got the quickest and hardest hit from the credit freeze. The value of starts in October 2008 plunged 44% from September 2008 for the sum of hotel, office, retail, and warehouse. Projects ready to start were held up to redo financing and/or wait for a clearer view of the recession’s scale. A large share of the October drop was recovered in November. This suggests that the abruptness of lost financing arrangements—rather than lower space demand—was very significant in October. These projects, unlike public and institutional projects, depend considerably on rolling over short-term loans in the credit market for financing. Access to credit has improved by the beginning of 2009, so the projected further decline in nonresidential construction is primarily due to weaker space demand. Public and institutional construction did not entirely escape a direct hit from the credit freeze. Instead of stopping projects about to start or already underway, the impact 44 Consulting-Specifying Engineer • JANUARY 2009
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