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Signs of life for construction: some sectors start to rebound.

BOSTON -- The good news about the construction economy is the worst is probably over. But the recovery is uneven, varying by sector and locale, and it could be awhile before construction returns to prerecession levels.

Jim Haughey, Ph.D., chief economist for Reed Construction Data, told ASHRAE Journal in December that most sectors are seeing some signs of recovery, including residential housing, which picked up in 2010 partly due to credits for first-time homebuyers, and should see double-digit growth in 2011.

Meanwhile, the apartment building sector is expanding, byproducts of lower vacancy rates and slight increases in rents, and also the overall economy. "People who can't get into the single-family market are choosing apartments over tents," he says.

The commercial sector, he says, turned down later than the residential sector, but it's showing signs of improvement. This sector, he says, is split into private and public sectors and affected by sources of revenue.

The private sector, which took big hits during the recession because of the banking crisis, is picking up because money is becoming available, vacancy rates have stopped falling and rents are expected to increase.

"Banks are more willing to lend for these projects to developers with good credit now," says Haughey. "You couldn't say that six months ago."

The public sector, however, didn't experience the downturn like the private sector but is starting to sag. This is because its money from voter-approved bonds, taxes and other public sources, including the federal stimulus money, is drying up.

"There's not much prospect it will improve this year," says Haughey. "You can't pick up a newspaper without hearing about government funding problems."

Overall, Haughey says a return to the 2007 prerecession peak will not happen until something erases all of the bad debt. This is especially true of less urban communities served by regional and smaller banks.

"Big banks have been bailed out, but if you want to open a hardware store, you don't go to Wall Street," he says. "Smaller lenders have their money tied up in bad loans and don't have access to capital, and they're reluctant to use what they have on real estate. Lower interest rates are not going to change this."

U.S. Construction (Annual Percent Change)

SECTOR                           ACTUAL & FORECASTS

                          2009      2010     2011      2012

Lodging                  -29.9     -54.9     -5.3      24.1
Office                   -22.7     -29.3     -1.8      16.2
Commercial (retail)      -35.9     -26.1      0.7      12.4
Health Care               -3.6     -11.7      7.2      13.0
Education                 -1.7     -13.4      0.2      11.7
Religious                -13.9     -14.6      0.1       9.9
Public Safety              7.7     -13.3      1.2      11.3
Amusement/Recreation     -13.6      -9.6      1.7       9.5
Manufacturing             10.6     -32.5     -2.4      16.2
Total                    -13.2     -22.8      0.5      13.4

Source: Reed Construction Data
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Title Annotation:INDUSTRY NEWS
Publication:ASHRAE Journal
Geographic Code:1USA
Date:Jan 1, 2011
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