Advisors Say Stimulus Helps, But Rough Times Still Ahead for Commercial

Public works will pick up some of the slack in a non-residential construction market gone completely south. But commercial construction may continue to suffer for some time to come, economists told those attending a New York conference on the ailing construction industry.

“The stimulus bill will certainly be shaping construction this year,” said Robert Murray, vice president of economic affairs at McGraw-Hill Construction. As a result, the public works sector will be the “saving grace of construction” in 2009 and 2010, Murray said. Murray spoke at the McGraw-Hill “Managing Construction’s Financial Crisis” Conference in New York Feb. 24-25.

The conference focused on navigating the current market, new visions pertaining to construction, and preparing for a changing future.

Stimulus

The Federal economic stimulus package will pump more than $136 billion into the construction industry. The figure represents a 130-percent increase in federal construction spending compared to fiscal year 2008, said Stephen Sandherr, CEO of Associated General Contractors of America (AGC). The assistance comes as the unemployment rate in the industry hit 18.3 percent in January, with job losses totaling more than 747,000 in the last year.

The stimulus package is “nowhere near a panacea for the construction industry,” Sandherr said, but having both political parties talking about the importance of infrastructure is promising.

“There is a real emphasis on getting this money out fast," said chief economist for the Association of General Contractors of America (AGC) Ken Simonson. States must obligate half of their total stimulus package within 120-180 days and the remainder within one year

AGC ECONOMIST KEN SIMONSON

“There is a real emphasis on getting this money out fast," said chief economist for the Association of General Contractors of America (AGC) Ken Simonson. States must obligate half of their total stimulus package within 120-180 days and the remainder within one year.

Tough Years for Commercial Building

Commercial building has been hit hard by the credit crunch. Large projects nationwide such as Atlantic Yards in New York, the Chicago Spire, and the Echelon Resort in Las Vegas have been put on hold.

Construction of stores and large shopping centers is declining and another large decline can be expected this year as retail is the most overbuilt category, Murray said.

“I can't remember seeing this before … This is going to be a tough year for commercial building, there's no doubt about it.” He doesn't expect the commercial industry to rebound until 2011 to 2012.

His advice to developers is to find niches that are still showing decent activity and look even harder for projects that are still going ahead.

For many companies it will mean re-tooling and keeping a tight ship. Companies should look at staffing with multi-skilled employees and do more in-house, advised Ira Levy, Northeast Region chief executive of AECOM. Sub-contractors will likely suffer as companies broaden their skills but he remains optimistic.

Expect Material Costs to Rise

Material costs could be shooting up again by 2010, driven by demand and transportation costs, said economist Simonson.

“By 2010, if economies like China and other developing nations get going again, they're going to add to that demand of materials that we need here for construction” and anytime there's a surge in shipping costs, or fuel surcharges, “you feel it on the construction site,” Simonson said.

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