Masonry Magazine February 2004 Page. 51
Vacancy rates moved upward, landlord discounts and a general easing in rental prices materialized, translating into a dismal picture for multi-family investors. Unfortunately, the current adverse conditions are not going to change anytime soon.
The 9.6% average apartment vacancy rate will probably worsen before it gets better. Even as interest rates climb and keep more potential first-time homebuyers in apartments, it will take the better part of a year before vacancies decline to a level prompting acceleration in multi family construction activity. Nonetheless, the revival in multi-family construction is expected to be very modest.
Nonresidential Construction
Outlook
Nonresidential construction accounts for roughly 25% of overall construction activity. Soft economic conditions have resulted in dismal performances by the sector's three largest players-industrial, office and retail construction activity.
Among these sectors the anemic performance of the economy has resulted in low industrial capacity utilization rates as well as rising office and retail vacancy rates, diminishing the need for new investment. At the same time, the soft economic conditions punished corporate profitability and created a harsh lending environment - diminishing the ability for new investment.
With the exception of retail construction, one or two quarters of favorable economic news is not going to favorably turn the conditions facing the office and industrial sectors. It typically takes a year before industrial construction activity turns positive. If this trend holds, it implies a 2004 recovery for industrial construction. In the meantime, industrial construction activity will continue to record negative growth, albeit at more moderate rates than encountered during 2003.
Public Construction Outlook
It is important to recognize that more than 90% of public sector construction activity is carried out by the state and local governments. As a result, the fiscal conditions of state governments largely dictate their ability to carry out construction activity. The sustained period of anemic economic growth has caused historic budget deficits at the state level.
Summary
The composition of construction growth is on the verge of change. In past years, residential activity has been the principal source of strength in the construction market. Growth in public construction activity has been under fiscal stress and nonresidential has suffered as a result of anemic overall economic growth conditions. Moving forward, PCA expects non-residential and public spending construction activity will increasingly become the growth leaders-with residential construction recording negative growth.
The Portland Cement Association is based in Skokie, Ill, and represents cement companies in the United States and Canada. It conducts market development, engineering, research, education and public affairs programs. For more information on PCA, please visit www.cement.org.
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February 2004
Masonry
49