Industry forecast conferences, such as that sponsored by CMD Group and others, delivered bad and good news: much of 2002 will see declines in construction activity and the economy in general.

Firms can succeed in any economy…but what will it be? That seems to be the dilemma for industry forecasters who prepared, and then rapidly modified their forecasts in a post-September 11 world. Industry forecast conferences, such as that sponsored by CMD Group and others, delivered bad and good news: much of 2002 will see declines in construction activity and the economy in general. Many prophets, however, have offset dire predictions with an anticipation of quick recovery by 2003.

Bill Toal, chief economist for the Portland Cement Association, predicts that the U.S. construction industry can expect an overall decline of 6.3 % in activity next year due to the economic downturn. Still, “by historical contrast this would put construction spending back to slightly above 1998 levels, which were record levels of activity at that time,” he said.

“We expect a 10 % decline in private, nonresidential construction spending next year after a 5.4 % drop this year,” Toal said. On the residential side, increased unemployment and stock market volatility will hit the consume, causing home sales to decline by 8.5 % next year after increasing by 1.2 % this year.

David Seiders, chief economist for the National Association of Home Builders (NAHB), agrees that the residential market has been hurt and will continue to suffer in the immediate future. He points out that industry sales are now about the same as the mid 90s, which is “not that bad when compared to the 80s and early 90s.”

Toal and Seiders say it won’t take long for the construction industry to recover. Toal predicts the construction industry overall will see a 4.2 % increase by 2003 and Seiders forecasts recovery for residential markets to begin as early as the second quarter of 2002.

Toal, Seiders, and other construction industry analysts, as well as experts from Canada and Mexico, share their outlook on the economic state of the nation and the construction industry. Following are excerpts from their 2002 forecasts:

U.S. Construction Outlook: Toal attributes the decline in construction activity in part to a “hole in the economy. The economy was already weakening significantly before the events of September 11.” Forecasts have been revised down further because of those events. For the overall economy, Toal revised his spring forecast of 1.7 % growth in economic activity down to 1 % growth for 2001. He revised his overall economic growth rate predictions for this year to 1.8% down from his prior forecast of 2.7%. In contrast to the declines in residential and nonresidential construction, public construction is now predicted to grow slightly, albeit at a much slower rate than it has for the past two years.

Residential Construction Outlook: Seiders said NAHB adjusted its housing market index following the September 11 attacks. About 10 days after the attacks, housing production fell by about 5%, he said. In a supplemental survey of homebuilders, 56% of respondents said new home sales had declined even further in the wake of the attacks. Figures released a few hours after Seiders’ October forecast showed the NAHB monthly index dropped 8 points from 56 to 48.

Retail/Industrial/Commercial Outlook: Glenn Mueller, professor, John Hopkins University Real Estate Institute and managing director, Real Estate Investment Strategy, Legg Mason, Inc., said there are two ways to look at how construction is faring: the physical realities of demand and supply and the financial realities of where capital is flowing and how it affects pricing. For example, demand and supply in the office sector has reached some equilibrium after several decades of dramatic swings in what was available and who wanted it, he said. Those levels will remain somewhat balanced though both sides will be lower for the next year or so, he said.

Except for a the short term displacement from the tech bubble bursting and the 9/11 economic slowdown. As far as financing for the different segments, the late 80s saw a phase of false price appreciation from too much financing that peaked in the first quarter of 1996, then began to fluctuate widely through the 90s as the public markets became more involved in financing real estate.

Originally, Mueller predicted the physical cycle would bottom out in 2001 then returning to a growth phase by late 2002, but the September 11 events may push that into 2003 he said. Capital flows will be affected by fear. However, the lowest interest rates in this lifetime have created significant opportunities for investing in real estate, he added.

Federal Reserve Regional Outlook: Ray Owens, research officer and economist for the Federal Reserve Bank, said commercial real estate markets have reflected modest growth trends in the last year: increases in office vacancies and subleasing were helped along by the decline of the high technology industries. He predicted that vacancy rates, while on the increase, would level out during 2001 and would not get anywhere near the historically high levels of the early 1990s.

Federal Construction Outlook: The federal government’s Office of Architecture has come a long way from the 1960s when its designers “studied the many ways to build a box,” joked Edward Feiner, chief architect of the U.S. General Services Administration (GSA). Today, the government considers itself a reflection of the nation: its projects are designed to be aesthetically pleasing, but also environmentally friendly, to protect its occupants against today’s dangers, and to last for centuries. “Whatever we build today will be around in 100 years and it will reflect what we as a society thought was of value,” Feiner said.

This new way of thinking was helped along in the 1980s when a major federal court expansion created the need for an overall strategic building plan. As part of that plan, GSA launched an awards program—a major effort to bring the private sector into the picture to form partnerships with the government. Now most of its projects consist of public/private partnerships.

Today, the federal government builds all over the country with the goal of enhancing the community. For example, a new city hall park in Jacksonville, FL features not just the new courthouse and city hall, but a three acre park.

A large percentage of the government’s projects involve historical buildings, Feiner said. Of 150 million square feet of leased facilities the government operates, 40 percent are eligible for listing in the National Historical Register.

Many of the current federal buildings also are receiving a facelift. Feiner said over 100 million square feet of buildings completed in the 60s and 70s are being retrofitted. The retrofits are being done for increased seismic and public safety, as well as to make the buildings more aesthetically pleasing.
Feiner stressed that despite the nation’s nervousness following the September 11 terrorist attacks, “we will not be frightened out of downtowns.” He said many federal buildings are integrating new security enhancements and border stations will be a major part of that effort.

Federal government is also following its own mandate to make buildings greener. By 2002, all new federal buildings built must be at least a silver ranking in the Environmental Protections Agency’s LEEDS program.

Major Projects and Trends for 2002:A panel of leading design, construction and engineering experts outlined the trends for the built environment based on recent and planned projects.

  • Edward Friedrichs, FAIA, president and CEO of Gensler, mentioned innovative adaptive reuse projects of structures that had not attained sufficient occupancy rates, such as turning a large plant into a mega-church.

  • Ray Messer, PE, president and chairman of the board for Walter P. Moore,said a new counter- trend business is coming in from many areas of the country that need to build up deteriorating infrastructure.

  • Pat Priest, CFO/Managing Director of The Beck Group, noted that early signs indicate changes in the basic design/engineer/estimate/construct process. Instead of acting in different “silos,” companies are forming teams among its experts to deliver projects quicker, with fewer prices and at less cost.

Harold Adams, FAIA, chairman of RTKL, which just won a contract to work on replacing parts of the Pentagon, observed that while the rest of the world is seeing slowdowns, China is an active market.

Stephen Fiskum, COO of Hammel Green and Abrahamson said one of the greatest challenges firms face is to maintain strong balance sheets by containing expenses instead of looking for new ways to invest.

Canadian Outlook:Alex Carrick, chief economist for CanaData, expects Canadian housing starts, which had grown to 162,000 average units per month from January to August this year, will probably fall nearer to 157,000 starts per month by year end and 153,000 starts in 2002. He said the events of September 11 will cause the broad-based demand for high-rise condos to suffer. Most provinces will also see a decline in commercial, industrial, and institutional construction starts, which he predicted would be off by just over 1% for the country as a whole.

Mexican Outlook: Mario Rodarte, chief economist for the Center for Economic Studies for the Private Sector, said the Mexican economy is still growing and inflation levels are lower than predicted. However, the construction industry, which comprises 4.2% of the nation’s GDP and employs 6.3% of the workforce, is not faring well under current economic conditions and is expected to decline modestly in 2002.

Jim Cramer, chairman of Greenway Consulting and DesignIntelligence Editor, recently moderated the 2002 construction forecast conference at the National Press Club. More more info. visit