WASHINGTON, D.C. – Some leading construction industry experts are forecasting slow downs in their industries that could have an impact on the landscape industry. These reports were released when the CMD Group recently hosted its fourth annual North American Construction Forecast at which construction industry experts analyze the trends shaping the construction industry. Because new construction projects are often followed by new landscaping projects, these construction trends provide an outlook for the landscape contracting industry as well.
Retail And Industrial Building Sectors Steady For 2000
Hugh Kelly, chief economist of Landauer Associates, predicted retail and industrial real estate to dip slightly at the beginning of 2000 then continue to grow throughout the year. He believes the dip is only a temporary result of investor anxiety over the Y2K crisis.
According to Kelly, investment into real estate only amounted to $4 billion in the first quarter of 1999 but then bounced back to set a record of $7.5 billion in the second quarter. "The strongest region in the [second] quarter was along the Pacific, especially California," said Kelly. "It has led the nation in retail and industrial building development for the last two years."
Kelly said that Seattle, Los Angeles, northern New Jersey and Denver will be hotspots for industrial construction, while Phoenix, Washington D.C., Orlando and Tampa would have low industrial construction in 2000. On the retail side, he sees Philadelphia, New York, Boston and Chicago as large development locations for new construction.
Kelly’s enthusiasm about the real estate market comes from the status of the economy. He said, "The U.S. economy is in the sixth year of an extraordinary expansion, which has pushed unemployment to very favorable levels and is creating prosperity for all classes."
Office Vacancy Rates Rising; Office Construction Increasing
According to Raymond Torto, principal and managing director of Torto Wheaton Research, the current demand for office space should remain strong for at least the next two years. "However," he said, "we are starting to see more space being delivered into the marketplace in 1999, and we are beginning to see vacancy rates rise."
Rising vacancy rates are mostly due to the influx of new office construction that is flooding the market. Office construction is up 11.3 percent this year and continuing to rise, according to Bill Toal, chief economist for the Portland Cement Association. Toal also stated that office construction will maintain its current levels, if not increase further, in the years ahead.
During the third quarter of 1999, office vacancies rose drastically from 1 percent to 9.8 percent. High office vacancy rates can negatively affect landscape contractors because of lack of funds for property upkeep. However, new building construction can positively affect landscape contractors because of increased properties to develop. Only time will tell whether diminished landscaping work will result from reduced occupancy and funds or if increased landscaping work will result from the influx of new office construction.
The amount of new construction in Atlanta and Dallas has been dubbed "overbuilding" by CMD Group due to the resulting increases in vacancy rates. Atlanta has seen an increase from 10 percent to 12 percent and Dallas has seen an increase from 13 percent to 18 percent by the end of 1999. The vacancy rate is expected to increase in Dallas for the next two years as 8 million square feet of new construction is scheduled for 2000 and 7 million square feet is scheduled for 2001.
Conversely, vacancy rates in Washington, D.C., Virginia and Maryland are at approximately 5 percent. The decreased supply of office space is driving rent higher, which may increase landscaping funds. However, Torto expects increases in new construction to meet the demand for office space, causing vacancy rates to rise to 12 percent. Once again, this brings up the question of which factor – vacancy rates or new construction – will affect landscape contractors.
Residential Construction To Slow In 2000
For landscape contractors relying on residential construction, Robert Barr, a senior economist with Fannie Mae, predicts a slow year in housing activity, following record levels in home sales and mortgage market activity in 1999.
Barr credits the stock market for consumer spending in 1999 and also for the slowdown predicted in 2000. According to Barr, "A lot of consumer spending has been fueled, at least in part, by the wealth-effect of the stock market." He said that if the stock market continues to go down or move sideways, consumer confidence will decrease, causing decreased home purchases.
"Household growth remains very strong, rising faster than the population growth as a whole," said Barr. However, he noted that refinancing rates – including long-term interest rates and 30-year fixed rate mortgages – have been high, causing the predicted residential construction rate to dip in 2000. Barr believes that as the economy slows down, the interest rates will drop. That drop is then expected to fuel increased home construction in 2001.
Barr said 2000 should see an 8 to 10 percent drop in new home sales, followed by a slight recovery in 2001. "Even with that drop-off, … 2000 would still be the third best year ever after ’98 and ’99," he said.
The author is Internet Editor for Lawn & Landscape.