US Commercial Construction Starts to Drop 16% This Year
Standard & Poor’s expects US commercial construction starts (inflation adjusted) to drop 16% in 2008 and 9% in 2009. In a n new rport on the industry, S&P says that severe recession scenario, building would drop 20% in both 2008 and 2009.
US commercial construction surged 12.9% in 2007, responding to high occupancy rates and easy financing, S&P says in U.S. Commercial Construction: After The Wave Comes The Trough. New activity dropped sharply in the fourth quarter as financing became more difficult and employment growth slowed.
We expect new commercial starts to weaken further in 2008, but the carry-through from buildings that reached groundbreaking in 2007 should keep construction spending above that of 2007.
All categories of commercial construction plus multifamily housing are likely to weaken, with apartments in the greatest danger and offices the least. On the positive side, the degree of overbuilding in commercial properties is far less than it was in the late 1980s, where downtown office vacancy rates were 20% even before the start of the recession. At the end of 2007, vacancies were averaging about half that level.
The boom has come to an early end. The good news: It never got too far out of hand.
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