Analysts predict commercial construction uptick

The rebound in U.S. industrial production from the depths of the recession signals commercial construction is also about to pick up.

 

Bloomberg's chart of the day shows that changes in private nonresidential building track shifts in output with a 12-month lag. Since reaching an 11-year low in June 2009, the month the recession ended, the Federal Reserve’s index measuring what American factories, mines and utilities produce is up 11 percent. By contrast, business spending on nonresidential projects, including factories, office buildings and shopping centers, reached an almost seven-year low in January, figures from the Commerce Department showed March 1.

 

Commercial builders’ fortunes may be about to turn, said Ted Wieseman, an economist at Morgan Stanley in New York. Vacancy rates are starting to drop, factory capacity -- though still ample -- is starting to be used up, and credit is becoming easier to obtain, he said.

 

“Commercial real estate prices for trophy properties have been moving sharply higher, and broader major metro-area trends are also improving,” Wieseman said in an e-mailed response to questions. “Smaller properties and markets are still struggling,” in what he termed a “bifurcated market.”

 

Morgan Stanley projects nonresidential construction will begin contributing to gross domestic product in the second quarter, according to Wieseman. Commercial construction added 0.1 percentage point to growth in last three months of 2010 after subtracting for nine consecutive quarters.

 

A net 12 percent of banks saw stronger demand for commercial real estate loans in the last three months of 2010, according to the Fed’s Senior Loan Officer survey, released Jan. 31. That compares with a net 66 percent reporting decreased demand during the first quarter of 2009.

 

See the chart here.