Rebuilding the Construction Industry November 1st, 2009
The economic downturn has wounded many industries but it seems that the construction industry has been completely paralyzed. Due to tight credit markets, high unemployment rates and many more contributors, the construction industry has been hit hard this year. We are seeing less plans for growth, less backing from investors, and less construction workers in the workforce.
But according to an article in the Wall Street Journal, we are expected to see modest gains in the construction arena next year. So things are looking up! Or are they?
There are many obstacles that the construction industry must confront before it has any chance to heal. Commercial construction will continue to struggle for a number of reasons. Companies have downsized and we are now aware of the amount of overbuilding that we have done due to office, warehouse, retail and factory space that is now empty. There is very low utilization of these facilities which means we have no need to construct new spaces. Also, tough financing has made it extremely undesirable to invest in new commercial development.
It seems that residential construction is also in troubled water. Apartment construction is more likely to decline next year because of the highest vacancy rate in the last 23 years. Due to few good tenants and lower rents, more investors are trying to sell their properties as opposed to rent them. And it’s not only the apartments that are being hit hard, but homes as well. The obvious effects of the meager real estate market and the mortgage crisis are not the only contributors to the shaky forecast. But other issues such as the decline in housing formations are contributing to this as well.
While the residential and commercial sectors may not be drastically improving next year, the one sector that we can count on is infrastructure. There is no doubt that our roads and freeways need major work and construction efforts have been focusing on these jobs lately. So let’s just hope that the contribution of highways and bridges offset a lack of commercial and residential property construction.
So what does this mean to you? Well, if you are a worker in the construction industry then you can expect that total jobs in all types of construction, other than infrastructure, will likely be lower both a year and probably two years from. This is not a typical recession and the recovery will definitely not be led by the construction of new buildings. On the other hand, if you are looking to build or are in the market for a new space, now might be the time to take advantage of the slow construction industry.
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