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'Modest Growth' in Construction Predicted for 2013

By Michael Tucker 1

U.S. construction starts will likely increase 6 percent next year to $483.7 billion, the 2013 Dodge Construction Outlook reported.

New construction starts edged up 2 percent in 2010, followed by another 1 percent gain in 2011, and 2012's expected 5 percent increase will take the annual figure to $458 billion, the report said.

"This still leaves the volume of total construction starts 32 percent below the 2005 peak on a current-dollar basis and down about 50 percent when viewed on a constant-dollar basis," said Robert Murray, McGraw-Hill Construction's vice president of economic affairs. McGraw-Hill Construction publishes the industry forecast.

"The modest gains experienced during the past two years have in effect produced an extended bottom for construction starts, in which the process of recovery is being stretched out," Murray said.

The report said multifamily housing could rise 16 percent (in dollar terms; 14 percent in unit terms) next year, marking healthy percentage gains but slower growth than 2011 and 2012. "Improved market fundamentals will help to justify new construction, and this structure type continues to be viewed favorably by the real estate finance community," the report said.

Commercial building could increase 12 percent, the report predicted, slightly faster than the 5 percent gain estimated for full-year 2012. The report said both warehouses and hotels will benefit from lower vacancy rates, while retail store construction will feature more upgrades to existing space.
"The increase for office construction will be modest, as new privately financed projects continue to be scrutinized carefully by lenders," the report said. It predicted that next year's level of commercial building will fall more than 40 percent below the 2007 peak when measured in current dollars.

Murray said the looming "fiscal cliff" scenario of proposed federal budget cuts and tax increases scheduled to take effect on Jan. 2 poses a "significant downside risk to the near-term prospects for the U.S. economy and the construction industry." 

But Murray noted that if efforts to cushion the full extent of the fiscal cliff work, "keeping the U.S. economy from sliding back into recession, then there are several positive factors to benefit construction, including low interest rates and improving market fundamentals for several project types."

1 Printed with permission by MBA Commercial/Multifamily NewsLink.