SECOND QUARTER CONSTRUCTION OUTLOOK 2009

A QUANTITY SURVEYOR’S PERSPECTIVE – NEWSLETTER
SECOND QUARTER CONSTRUCTION OUTLOOK 2009
September 10, 2009

The second quarter of 2009 has seen some signs of the recession slowing in a few non-construction sectors. Construction still remains in a downturn as funding for projects is still very difficult obtain, keeping construction growth and employment in decline. It is forecasted that the construction market will continue on a downward trend through the end of 2009, but the intensity of the downward spiral is easing and should level off by December 2009.

Nonresidential construction projects are currently limited to State and Federal projects financed with the Federal stimulus packages. These contracts are beginning to start work, which has allowed civil construction to remain at or near levels reported in the first quarter of 2009. It is projected that costs for this sector of the construction industry will remain stable with the only changes coming from the unions in contract increases and with minimal increases in materials beginning the first quarter of 2010.

Material pricing has fallen to levels seen in December 2007, prior to the wild climbs in 2008, and are projected to show a slight increase in the first quarter of 2010. Steel prices are still in decline for the second quarter of 2009 despite steel mills pushing for a 22% increase to take the pricing back to where it was in the first quarter of 2009. The overall demand remains low as nonresidential construction starts are down, and construction spending has dropped 6% since the start of 2009 and by the end of the year is projected to drop a total of 11%.

First time buyer incentives have created a slight increase in residential construction, but with foreclosures and homes rolling off the Real Estate rolls there is still an abundance of properties keeping the market prices lower than what was seen in 2008. The slight increase in residential construction has had no impact on nonresidential construction or materials pricing.

The increased competition between contractors will help dampen previous strong upward pressure from sub-contractor pricing, a major escalation driver in some markets, while the drop in commodity prices will assist in reducing material costs nationwide. Further, lower material costs and overhead may make previously uneconomic projects more attractive if funding becomes more readily available.

In summary, the effects of the financial downturn are continuing to shift the construction industry from an abundance of activity with insufficient capacity to a reduction in activity with over capacity. The resulting increase in competition, in conjunction with declining costs of materials, will see no escalation increases in 2009 and are projected to remain flat until the second half of 2010.