Real Estate Crisis Continues - Non-Residential Construction To Fall 20 Percent By End of 2010

Last Updated Jul 15, 2010 10:08 AM EDT

The news from the American Institute of Architects (AIA) this week was grim.

Non-residential construction spending is expected to fall by 20 percent in the last six months of 2010, according to the semi-annual Consensus Construction Forecast.

An oversupply of buildings coupled with weak demand will make prices sink. Lenders, who are watching commercial prices begin to fall are making it more difficult to get loans.

"There are a number of factors at play here that are contributing to one of the steepest construction downturns in generations," said AIA Chief Economist, Kermit Baker, PhD, Hon. AIA, in a press release announcing the forecast. "We have businesses nervous about expanding their facilities, a fragile financial sector, excess commercial space, and general unease in the international economy."

The biggest hits will be taken by the commercial and industrial real estate sectors, including:
  • Hotels (projected to be down more than 43 percent)
  • Office buildings (-29.1 percent)
  • Retail (-25.6 percent)
  • Industrial (-21.3 percent)
The institutional category is expected to fare somewhat better, though all building construction types are projected to be down, including:
  • Amusement/recreation (-14.4 percent)
  • Education (-13.2 percent)
  • Religious (-10.2 percent)
  • Public safety (-9.1 percent)
  • Health care facilities (-6.5 percent).
"Things should begin to turn around midway through next year [2011] with retail and hotels expected to see the strongest growth, along with health care and amusement and recreation facilities," Baker added.

But the growth in non-residential construction isn't expected to be all that strong, up just 3.1 percent, after the steep drop this year, according to the AIA forecast.

The forecast is important because architects are typically among the first professionals developers will consult for a particular construction project â€" sometimes even before the land is purchased.

While commercial real estate construction is expected to be down 20 percent, residential construction has hit a record low, with just about 300,000 new homes expected to be sold in 2010.

Real estate services and construction contribute about 10 percent of our nation's gross domestic product (GDP). If no one builds new houses, health care facilities, schools, warehouses, or office buildings, that's hundreds of thousands of people who won't have a steady paycheck.

Who says we aren't still in a recession?

Even if we're technically not in a recession, the real estate crisis continues, and with it, our hopes for something other than an extremely modest recovery.

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Ilyce R. Glink is the author of several books, including 100 Questions Every First-Time Home Buyer Should Ask and Buy, Close, Move In!. She blogs about money and real estate at ThinkGlink.com.
  • Ilyce Glink On Twitter»

    Ilyce R. Glink is an award-winning, nationally syndicated columnist, best-selling book author, and radio talk show host who also hosts "Expert Real Estate Tips," a Internet video show. She owns ThinkGlink.com as well as Think Glink Media, a privately held company that provides consulting, content and video services to companies and non-profit organizations.

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