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Construction contracting to grow by 10% next year.

Construction contracting to grow by 10% next year

As signs of recovery from the 1990/91 recession appear, total construction contracting in the United States is expected to grow by 10 percent next year to $251 billion.

The recovery expected to take hold in 1992 will be led by single family housing. Lingering problems from the 1980's and a complex marketplace, however, still hinder expansion for nonresidential building.

According to George A. Christie, vice president and chief economist for McGraw-Hill's Construction Information Group, "Commercial building is about as bad as it is going to get, and it won't improve much in the near future. Publicly financed construction -- institutional buildings and public works projects -- is as good as it can get, and can't improve much until new programs are legislated. This means that the 1992 Outlook for total construction comes down to a matter of how much the housing market can deliver. While the recovery will make some headway, the question remains, what kind? As construction recoveries go, this one is in a class by itself."

Christie added that the early dominance of homebuilding is already evident, and will become more apparent in 1992. "In fact, there is little opportunity for near-term expansion in anything except single family housing."

As the country deals with the complex legacy of the 1980's, the current construction recovery will be unlike any other. "Various limiting factors, such as credit availability, geographic concentrations and demographic influences, indicate that the 1992 potential for recovery of single family residential building is not what it was in other 'first year' situations," said Christie.

By estimating a total of 975,000 housing units for 1992, with little improvement in the rest of the construction market next year, a 10 percent increase for total construction contract value is expected--roughly half the first year gain of prior recoveries.

The McGraw-Hill economist presented the assessment at the 52nd annual Building Products Executives Conference, a major forum for 500 business leaders held by McGraw-Hill's Construction Information Group. The firm is widely known for its Dodge Reports on construction activity, Sweet's Catalog Files of building product information, and key construction industry magazines.

Commercial: In the commercial sector, the glut of empty space continues to haunt the construction market. "Stability of commercial contracting in 1992, following the back-to-back declines during the recession years, is the best that can be expected for the near term," said Christie. Next year's office building is forecast at 95 million square feet, down 5 percent; retail building at 345 million, down 4 percent; and hotels/motels at 30 million, unchanged.

Public Works: Contracting for public works is forecast to advance about 4 percent in 1992. "This potential gain, which hinges on pending legislation, marks the beginning of a period of expanding infrastructure work after several years of high-level stability," said Christie.

Five Years Ahead: The McGraw-Hill economist expects that between 1992 and 1996 prospective gains in housing, institutional and public works construction will not be large enough to offset the lingering weakness in commercial real estate development. Total construction contract value for the five-year period 1992 to 1996 will fall short of the comparable 1983 to 1987 total by something between 5 and 10 percent. Yet, in current dollars, the inflated value of work contracted during 1992 to 1996 will be greater than in 1983 to 1987 by as much as 30 percent.
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Copyright 1991, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Publication:Real Estate Weekly
Article Type:Brief Article
Date:Nov 27, 1991
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