Construction Forecast Brings Good News, Bad News

Total construction is already at a record high, but Bill Toal, chief economist for the Portland Cement Association, predicted the blistering pace to climb another 1.3 percent for 2000, dip 1.9 percent in 2001 and then increase another 1.3 percent in 2002. Obviously, the overall economy is a key driver behind construction spending, and Toal sees the entire economy swelling by another 3 to 3.5 percent next year. "With the technology bursts we are getting, unless something really broadsides us, I see continued economic growth at a moderate pace as far as the eye can see," he noted, adding that October 2000 marked the 115^th consecutive month of unprecedented economic expansion.

Population demographics can also be credited for some of the construction growth as the rise in the grade school population has meant more school buildings and the increase in the number of individuals aged 18 to 24 means more apartment construction. However, Toal tempered his enthusiasm by noting a decrease in the number of people age 25 to 44, which could lead to a decrease in new single-family home construction in the next two years.

In fact, Toal noted that this key source of new installation work for landscape contractors has already begun to slow, and he predicted a 9 percent drop in residential construction for 2001. However, the growth should return in 2003, and construction of multi-family units should remain steady.

"What is dragging down single-family housing starts is multi-family housing starts," agreed David Seiders, chief economist, the National Association of Home Builders.

Toal’s forecast for non-residential construction calls for a 4.6 percent increase by the end of this year, followed by a leveling off in 2001 due to fewer new hotel and retail projects. The aforementioned boost for educational construction equates to a 16.4 percent jump for this year and a promising future. Fortunately, any negative impact stemming from the slowdown in commercial construction may be offset by a continued climb in the office occupancy rate, which currently stands at 91 percent and provides commercial property managers and owners with the funds necessary for maintenance and enhancement projects.

Ray Torto of Torto Wheaton Research, explained that the cities with the lowest office space vacancies for the third quarter of 2000 were: San Jose, Calif., at 1.2 percent; San Francisco, Calif., at 3.3 percent; New York, N.Y., at 2.5 percent; Seattle, Wash., at 3.4 percent; Boston, Mass., at 3.7 percent; Washington, D.C., at 4.2 percent; and Portland, Ore., at 7.1 percent. Some big-name cities with above-average vacancy rates include Los Angeles, Calif., (12.4 percent), Phoenix, Ariz., (12.5 percent), and Dallas, Texas (15.3 percent). As a result of the climbing occupancy rates, office rents rose at a 16 percent annualized rate for the first half of 2000.

Some landscape companies may find themselves giving another look to the frustrating government projects, which Toal thinks will represent strong opportunity next year as more communities and local governments enjoy healthy budgets and fund more public works projects.

In particulate, Toal said the construction hotspots for the next few years will be California, the Pacific Northwest, the Southeast and Texas.

On the downside, forecasts for the labor future are not bright. William Rodgers, chief economist for the U.S. Department of Labor, explained that what many people perceive of as a labor shortage can be more accurately described as a skills shortage. "The Department of Labor believes that construction employment will grow by 9 percent over the next 10 years, [which is] more slowly than the overall economy, which is expected to grow 14 percent over the same period."

However, wages for construction work and related industries have slipped relative to other industries since 1979. Rodgers said the government is looking for ways to raise the skill level of the currently untapped pool of 13 million Americans either looking for work they can’t find or not looking for work. And the fact that about half of this group is female and more than half is minorities would indicate that the landscape industry will become increasingly diversified in the future.