Modest Recovery Nears for Several Construction Markets

The construction industry experienced many ups and downs in the second quarter as the nation's economy struggled to recover. FMI, a Raleigh, N.C.-based consulting firm, identified several key markets and predicted their performance for the remainder of 2003 and 2004.

Residential.

Low mortgage rates have fueled the residential sector, which will remain robust into 2004 due to sustainable levels of new and existing home inventories.

Nonresidential.

The nonresidential construction market will slowly improve for the remainder of 2003, but won't fully recover until the middle of 2004. Excess capacity, the low profitability of the power distribution and telecommunications sectors, and growing state deficits are all slowing down growth in this sector.

Offices.

The slump in the office construction market could continue for the next 12 to 18 months. After the dot-com bubble burst, office vacancy rates soared in the high-tech sector, but a sharp reduction in the construction of new office buildings has improved absorption rates in many markets.

Warehouses.

With domestic companies manufacturing more products at overseas facilities, manufacturing facilities have taken a hit in the poor economy. Because the imported goods must be stored domestically, however, the value of warehouse construction put-in-place posted a 1.5% year-to-date increase in June. Mini-storage facilities have continued to show strong growth due to the robust residential market and the increase in employee relocations.

Retail construction.

Construction volume has been flat or down in many retail sectors, but the strong residential market could lead to healthy retail sales in 2004.

Airports. With the decline in business travel, many airports are now improving the safety and efficiency of their facilities. According to the FAA, airports will use 61% of their capital investment for capacity enhancement, reconstruction, and modifications, and 39% to fund safety, security, environmental, and other projects. An additional $3 billion to $5 billion will be required to cover the costs of new explosives detection systems in airport baggage check areas.