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Construction Outlook Looking Better, But Don’t Call It A Rebound Yet

Current Metrics, Major Leading Indicator Shows Stronger Prospects For Development In 2013
January 9, 2013
Momentum for an increase in construction has been building for months, and the fiscal cliff agreement by Congress should unleash more private construction investment in 2013, analysts said.

Leading indicators such as the Architecture Billings Index (ABI) indicate the brightest conditions in years are ahead for new construction. Work at architecture firms across the country continues to increase in November, according to a monthly survey.

The Architecture Billings Index (ABI), a leading indicator of construction spending and activity nine to 12 months in the future, posted an increase for the fourth straight month in November. The monthly survey was released late last month by the American Institute of Architects (AIA), before the passage of the tax legislation.

The November ABI score was 53.2, up from 52.8 in October. The new projects inquiry index was 59.6, up slightly from the 59.4 mark the previous month.

"These are the strongest business conditions we have seen since the end of 2007, before the construction market collapse," said AIA Chief Economist Kermit Baker, who predicted that the resolution of the federal budget will likely lead to the green lighting of numerous projects currently on hold.

That said, the path to recovery for the long suffering construction industry is paved with uncertainty and littered with potential landmines like the unresolved need to raise the debt ceiling and the uncertain future of publicly funded construction projects due to cuts in federal spending.

Construction spending dipped 0.3% from October to November after seven months of steady gains, according to preliminary data from the Census Bureau for November analyzed by the Associated General Contractors of America (AGC). However, a more relevant comparison is with year-ago levels, and the November report shows a respectable 7.7% gain over the past 12 months, said Ken Simonson, chief economist for the association.

Simonson noted that private single- and multifamily spending continued growing strongly in November. Spending on new single-family houses climbing 1.3% for the month and 29% year-over-year, while multifamily spending rose 0.5% and 46%.

"Private nonresidential construction has been in a holding pattern for the past several months, but last night’s passage of a tax bill should encourage many businesses to go ahead with projects they have held in reserve," Simonson predicted.

Despite a drop of 0.7% in November, the year-over-year total was up by 8.2%, a figure which appears poised to return to double-digit %age gains in the next few months, he said.

Four categories of private nonresidential construction posted increases of more than 10% between November 2011 and November 2012, although results for the latest month were mixed. Lodging construction declined 1.3% for the month but jumped 26% over 12 months.

Office construction shrank 0.9% from October but grew 17% from November 2012. Private transportation construction, principally by rail and trucking companies, added 3.4% for the month and 16% year-over-year. Power and energy construction, including spending on oil and gas fields and pipelines, contracted 1.4% from October but rose 14% over 12 months.

Simonson observed that public construction spending, which has alternated between monthly increases and decreases in 2012, sank 0.4% in November and 2.6% year-over-year. He said the two biggest categories of public spending both rose for the month but declined from November 2011 levels.

Highway and street construction spending was up 0.5% from October but down 6% from a year ago, while educational construction spending rose 0.1% for the month but fell 3.4% from year-ago levels.

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