Near-term outlook remains bleak for US construction - economists

15 July 2009 16:58  [Source: ICIS news]

HOUSTON (ICIS news)--Leading US construction indicators for income-producing properties showed weakness across the board in the second quarter, leading to a continued pessimistic near-term outlook for both non-residential and residential construction, two chief economists said on Wednesday.

“The outlook for developer-financed construction is absolutely horrendous,” said Ken Simonson, chief economist with the Associated General Contractors of America (AGC). “The vacancy rate is high enough now to suggest that there are very few new projects that make economic sense, and it may get even worse.’

Both non-residential and residential construction create demand for such chemical products as coatings, sealants and adhesives.

According to data released by real estate research firm Reis, the average lease rate at shopping centres in the top 77 US markets decreased from April to June, marking the fifth straight quarterly decline.

That is also the longest consecutive decline in the 29 years the company has tracked the figures, Reis said.

Likewise, the US office rental rate fell 2.7% in the second quarter from year-earlier figures, the largest single-quarter decline since the 2002 first quarter, Reis said. The rate declined 0.7% from the prior quarter.

Meanwhile, the office-vacancy rate surged to 15.9%, up from 15.2% in the prior quarter and now at the highest level in four years, Reis said.

Reis projected the office-vacancy rate to increase further, peaking at 18.2% in early 2010.

“Vacancy rates have been moving from average or average-plus to high over the last six to nine months, and will keep rising for another six to nine months,” said Jim Haughey, chief economist with ICIS sister publication Reed Construction Data.

“So far, the largest increases have been for retail,” he added.

On the residential side, the vacancy rate for US apartments rose to 7.5%, up from 6.1% a year earlier and now at a 22-year high, Reis said.

Simonson said single-family housing units would likely show some rebound in late 2009 and 2010, but that multi-family housing units, including apartments, would likely remain weak at least through 2011.

The housing market is a key downstream consumer sector for the chemicals industry, driving demand for a wide variety of chemicals and chemicals-based products such as plastic pipe, insulation, paints and coatings, adhesives and synthetic fibres, among many others.

Simonson said the initial effects of the US stimulus bill were aiding the broader construction industry, but that would likely not be able to overcome broad weakness in both the non-residential and residential sectors.

Any broad-based construction recovery would likely coincide with a turnaround in the overall US economy, he added.

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By: Ben DuBose
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