For the third year in a row, construction industry experts focused their forecasting abilities on the construction economy at a national conference held in late October in Washington, DC.

For the third year in a row, construction industry experts focused their forecasting abilities on the construction economy at a national conference held in late October in Washington, DC. More than 200 design and construction professionals, manufacturers, economists, government agencies, association executives and journalists assembled for this important industry event, taking note of the underlying socio-economic trends already shaping construction growth in the U.S., Canada and Mexico for 1999 and beyond.

School construction was referred to as the superstar of the ’99 construction markets, said Bill Toal, chief economist for Portland Cement Association, who provided an overall forecast for the coming year. Office construction is predicted to remain strong. Highway construction will see a seven- to eight-percent increase over the next couple years thanks to TEA-21. The recently passed bill guarantees $198 billion for highways and highway safety from 1998 to 2003.

Cutback in industrial construction are predicted, retail construction is expected to flatten out and hotel construction has peaked and is expected to decrease. There are domestic factors which could affect these predictions–wage pressures, possible higher inflation, labor shortages, speculative financial bubble, fiscal monetary policy errors, consumer debt burdens and the year 2000 computer crash.

Ron Skaggs, FAIA, chairman of Dallas-based HKS Architects, discussed the future of the healthcare industry. The emphasis has shifted to health maintenance and prevention of illness but an increase in violent crimes is making evident the need for critical care facilities and a larger network of trauma systems. More consumer amenities will be designed into 21st Century health facilities. More like hotels than the hospitals of the past, some facilities will even be equipped with overnight accommodations for friends and families. A greater emphasis will be placed on primary care and health maintenance. Drive-up diagnostic facilities and separate intensive treatment facilities will also be required. Major growth will continue for long-term care facilities due to strains on the healthcare system caused by an increasing elderly population. In addition, a large number of skilled nursing facilities and academic medical centers will continue. A high demand for ambulatory care facilities, emergency centers and community health centers will be accompanied by freestanding wellness centers. Design-build teaming should decline until 2001 and then peak again.

Hugh Kelly, executive managing director for the Research Group of Landauer Associates, anticipates retail and industrial construction to decline. Supported by a solid investment market and ample liquidity through August 1998, this market is subject to capital markets credit crunch. The outlook also depends on global and domestic business cycles. In the retail sector, Portland, Chicago, Palm Beach, Nashville and Pittsburg have been promising markets, while Honolulu, northern New Jersey, Boston, Los Angeles and Long Island are lagging. Promising warehouse markets are Los Angeles/Riverside, Seattle, Houston and Orlando, with Hartford, Baltimore, Jacksonville, New Orleans and Detroit lagging.

Probably one of the most difficult areas to predict in the construction market is that of office buildings. We don’t analyze construction, said Raymond Torto of Torto Wheaton Research, a top forecaster in commercial real estate. We look at investments and we handle space market analysis to try to understand what’s happening in the market and why. His research indicates stability in the office building field in 1999 and an additional building boom in the year 2000. Nationwide, office vacancy rates are lowest in the Northwest markets of San Francisco, Seattle, San Jose, Minneapolis, Austin, TX and Portland, OR. Boston, New York and Washington, DC’s rate hover around 6%, with Dallas still above 15%.

Frederick Flick, Vice President of Economic Research for the National Association of Realtors, predicts that ’99 will be the true test of the economy’s strength. Disposable income will increase and the Fed Funds Target Rate should go down to the 4% rate with mortgage rates for 30-year money just over 6%. ’99 home existing home sales should reach near-record levels but single family housing starts should drop 5%.

Canada’s construction economic forecast can be summed up in one word–solid. Alex Carrick, Economist/Editor for CanaData, a division of the CMD Group, says that low interest rates and inflation have created a healthy situation for Canada’s economy. The only negative at this point is that low commodity prices are driving down the value of the Canadian dollar which could lead to a slight slowdown of the ’99 growth spurt. However commercial construction figures remain strong including entertainment and recreation facilities plus casinos and hotels. Toronto, Ottawa, Calgary and Vancouver show substantial gains in industrial, commercial and institutional work. In the area of office and industrial vacancy rates, the overall rate is about 9% with industrial leading the way at 5.7%. Vancouver, Calgary and Winnipeg are showing increasingly lower vacancy rates with Toronto and Montreal reporting their lowest figures in five years.

The future of engineering projects such as oil and gas pipelines, electricity, highways and bridges, and sewers and water mains is cloudier, with some exceptions. The $3.7 billion Alliance Gas Pipeline project is being planned to realize higher Chicago prices for Alberta products.

Ricardo Salas Pardo, project director for Bimsa, indicated that Mexico has huge necessities and offers investment opportunities amounting to $51.3 billion. In Mexico, the construction industry accounts for 10.2% of employment and 48.2% of investment. Building work accounts for 32.61%, transportation 20.14% and petrochemical work 18.14%. In the public sector, opportunities exist in highway construction, urban works and single family housing with strong markets in the Federal District, Nueva Leo, Campeche, and Tabasco. Other opportunities exist. The improvement of potable water and sewerage will be a major factor. From 1998 to 2010, investment opportunities of $9.3 billion will be available, the bulk of which will be allocated to treating domestic sewage and industrial wastes. An estimated $976.4 million is planned for investment into seven main airports. These monies will be allocated to areas such as expansion and remodeling of air terminals, in addition to the construction of commercial areas, parking lots and airport hotels. This amount does not reflect investment needed to construct an alternate airport in Mexico City. The Mexican electric system’s capacity will be increased over the next nine years with a call for an investment of $23.4 billion needed for energy generation, power distribution and system maintenance.