Construction starts to grow slower than initial estimate
(Crain's) — A recovery in the local construction market is proving more anemic than previously predicted.
Contracts for future projects in the Chicago area added up to about $4.6 billion through June 30, a 2% increase from the year-earlier period, according to McGraw-Hill Construction Research & Analytics, a unit of Bedford, Mass.-based McGraw-Hill Cos.
“We thought by this time that things would start to loosen up,” says Kim Kennedy, manager of forecasting with McGraw-Hill. “They have loosened up a little, but not enough.”
With the economy losing momentum and financing still scarce, construction activity this year is on pace to fall well short of an earlier McGraw-Hill forecast. After predicting an 18% increase this year, to $11.5 billion in construction starts, the firm now expects volume to rise just 3% for the full year, to $9.8 billion.
Related story: Construction activity to rise but remain ‘depressed'
In a sign of the times, public works projects now account for the biggest share of local construction activity. Boosted by federal stimulus money, public works and utilities generated $2 billion in local construction starts in the first six months of the year, up 16% from the year-earlier period.
McGraw-Hill forecasts that construction starts in the sector will rise 11% for the full year to $4.1 billion, eclipsing spending in commercial construction, at $3.3 billion, and residential, at $2.4 billion. As private-sector development soared during the boom, public works accounted for 20% or less of local construction starts; this year, it will account for 42%, according to McGraw-Hill.
The residential sector, which generated more than half of all construction activity in 2005 and 2006, now accounts for less than a quarter. McGraw-Hill forecasts that residential construction starts in the Chicago area will rise 19% this year but will remain well below levels of a few years ago.
The commercial sector faces a gloomier outlook. Amid flagging demand for office, industrial and retail space, commercial construction starts are forecast to fall 13% this year.
Tight lending criteria for new construction projects remain an obstacle, but “the developers have come out of hibernation a little bit,” says Steve Smith, a vice-president with Leopardo Cos.
The Hoffman Estates-based contractor has broken ground on several projects so far this year, including a 43,000-square-foot Sunset Foods grocery store in Long Grove and a 60,000-square-foot medical office building in Schaumburg.
“There's still a lot of breath-holding out there,” says Mr. Smith, who heads Leopardo's retail, hospitality, office and industrial construction divisions. “I talk to brokers and developers all the time, and they all feel more positive about things. But there's still a little bit of ‘We're optimistic, but we're cautious, we're not going to get too far out on a limb.'”
