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Plagued by an economy rocked by scandal, slowed by stock market bears and assisted by give away interest rates, the construction industry emerged as one of the key winners of 2002. In the face of burgeoning domestic policy, potential war, and shifting employment, consumers opted for real estate and automobiles instead. This bodes well for those affected by housing starts, public infrastructure development and private upgrades and improvements. However, all was not pristine, as the market slowed for private office and industrial, and caused concern for those working the Resort and Destination end of the business . . . Tell Tale Numbers . . . Enron, Iraq, and Interest rates. What these three things have in common is that together, they characterize the economic climate for 2002. For the most part, the American public impacted the economy by their distrust in big business which resulted in a bear stock market; their involvement in the war on terrorism caused them to stay at home; and their ability to capitalize on low interest rates helped build their assets. With inflation at a relatively flat rate 2.3%, interest rates at 40 year lows and employment at a rate that slightly benefits the employer, landscape architectural firms who are looking to expand can make strategic moves for future growth and be fairly sure they can afford the move through at least 2005. Reed Construction Data, a leading construction information authority, hosts an annual North American Construction Forecast Conference in which top economists discuss their current findings and announce their projections for the year ahead. The general consensus at the 2002 conference was that while some construction sectors--such as single family housing--saw a relative boon in business compared to other areas, the industry as a whole will retain stagnancy. Growth will be slow, maybe even flat, but over the next 3-5 years, growth will occur. According to Robert Murray, chief economist for McGraw-Hill Construction, a number of challenges facing the construction industry--including "low demand for commercial space, potential rising interest rates, and reduced tax revenues eventually impacting public works and institutional buildings"--will result in a 1 percent decrease in overall construction growth in the new year. Adversely, McGraw-Hill's Engineering News-Record predicts that gross domestic product will grow "at an annual rate of 3.5 percent during the second half of this year," and "inch up to a 4 percent annual rate" during the first half of 2003. This adds foundation for an overall stabilizing economy and consistant construction industry. Single Family Housing Single Family Housing (SFH) in the private sector continues to support the economy as SFH starts have rebounded to 1.266 million starts for 2002, up from last year's 4-year-low of 1.189 million starts. Florida, California, Texas, Georgia and North Carolina, respectively, are the top five states comprising more than 38% of all SFH Starts in the country. Of the total permits issued in 2002, 7.3% were not started, up from only 6.1% in 2001. However, total market growth will remain supple as starts and total dollars will continue to increase through 2005. Factors to watch for in this segment are interest rates and immigration. If interest rates increase, SFH could lose momentum. If the new Homeland Security Department cracks down on immigration, this too could dampen demand and hold the market at about $250 billion. Improvements While consumers were toning down repairs and maintenance by more than 9% in the first half of 2002, they've been adding on (up 12%) and rebuilding their housing units (up 16%). Multi-Family Housing The real estate market was red-hot this year, although as predicted last year by LASN, multi-family housing cooled for the most part, as consumers responded to the low mortgage rates and minimal-density neighborhoods afforded by single-family housing opportunities. However, at CMD's North American Construction Forecast conference in October, chief economist Ken Simonson of Associated General Contractors reported that multi-family housing construction experienced the most growth from last year, up 13 percent in 2002 compared to just 3 percent for single-family housing construction. "It's doubtful that (the higher percentage) can be sustained," Simonson cautioned in a statement released by Reed Construction Data. "The single family market may be able to remain on its near-record plateau if interest and unemployment rates stay low, but housing sales are drawing tenants out of multi-family housing. Multi-family housing construction seems poised for a fall." The data appears to be supporting Simonson's claims, as Topics.com reported, that although multi-family housing starts rose 6.3 percent in August, to 357,000--their best showing since May - they've recently fallen 15 percent at press time. Public Housing While it is a small overall segment of housing 2002 shows solid gains for Public Housing projects, especially at the State level. However, LASN is predicting that, due to budget restraints like those about to hit California, Public Housing will stay at a level rate of about $5 billion through 2005. For the Federal housing segment, one of the main issues consistently reviewed by the U.S. Department of Defense is the revitalization of Military housing conditions. In a report on military housing, which was published in the monthly newsletter Housing Economics, it was noted that nearly 1 million households in the United States were headed by a member of the armed forces in 2000. The report also stated that one-third of those households lived in government-owned units. This number may grow as the War on Terrorism builds momentum. Ground Trans-portation & Infrastructure With an increasing population, the need to add to and renovate infrastructure has translated to an 11 percent increase for highways and bridges. however, electric utility construction declined 24 percent--a 40 percent drop from the first half of 2001, in which utilities had a strong showing. There was also a strong mid-year showing for environmental public works, as development on rivers and harbors grew 19 percent, and work on sewers jumped by 38 percent. Industrial and Office Space A rise in unemployment, the Technology and Travel industries reeling in the reins, and five (5) previous years of steady growth in industrial and office space development, caused this segment of the construction industry to experience a drop of nearly 40% in 2002. With the Federal Reserve Bank citing a 13-year supply of sublet space on the market, don't expect a sharp turnaround. To wit, Silicon Valley's largest corporations have laid off up to 70,000 workers--a 20-year high--in 2002. However, job search sites have listed a total of 7,000 jobs in Santa Clara alone, a positive note leading economists to believe that a recovery in the tech industries will begin as early as 2003. The Fed also noted that with such a dramatic drop in 2002, coupled with steady recovery, the oversupply ratio of office and industrial space "is likely to flip in a favorable correction quite soon". Other Construction: Public and Private With the advent of the new Homeland Security Department and a focus on anti-terrorism, public construction of administrative buildings, prisons, police and fire stations, courthouses civic centers and passenger terminals will continue to grow in both the new development and retro fit arenas. This is a great opportunity market for Landscape Architects to provide terror safe landscapes around these important and potentially targeted public facilities. On the Private side, the government classifies such properties as car lots, restaurants, shopping centers and warehouses and other retail facilities as "Other Commercial" construction. As with the rest of the economy these areas took a loss in 2002 , with the exceptions of building supply stores (i.e. Home Depot, Lowes etc.) and drug stores, whose growth was a modest, but still existent 9.9% over 2001. Education While housing construction was at the forefront of the construction industry in 2002, no sectors performed as well as education. Although general spending was down from 2001--a trickle-down effect of a year characterized by revenue losses, cutbacks and recessions--education thrived as public spending in completed projects increased from $55.7 billion in 2001 to $65.3 billion in 2002. In fact the public development of educational facilities has increased every year since 1997, and should continue to grow through 2005. On the private side, growth was evident, if not as vigourous, posting gains in five of the past six years and topping off at $13.6 billion in 2002. Of the $65 billion put in place in 2002, 25.6% was for Elementary schools, 14.4% was for Middle Schools, 28.9% was for "Higher Education" and 4.7% was for library and archives. Growth will continue as the GenX'ers kids are entering school systems and immigration continues to grow at the fastest pace in U.S. history. Religious Buildings The U.S. Department of State, Bureau of Public Affairs (www.state.gov) has established the following guidelines for the development of religious buildings: "Portions of the capital city are zoned specifically for church buildings of all denominations. Government permission is required for the construction of new religious buildings in urban areas, and permission is required from chiefs in rural areas. Those religious groups that wish to construct new buildings may purchase a plot of land and apply for the required building permits. The Government has not restricted any religion with financial means from building a place of worship . . ." Religious institutions have seen an increase in attendance since 9-11. However, due to the sluggish economy, tithing is down across the country resulting in a decline in the construction of churches and other religious institutions of nearly 9% from 2001. The impact of lower giving to churches is already being felt in some areas such as Boston, in which the financial panel of the archdiocese recently gave Cardinal Bernard Law permission to file for bankruptcy--the first filing to ever occur in the Roman Catholic church. Hotels/ Motels One of the biggest impacts of 9-11 was felt by the hotel and motel construction industry, as spending on new projects decreased by more than 50 percent in 2002. The decrease is a sure sign that although real disposable personal income has gone up, consumers are being more conservative about their expenditures, opting to save instead of spend. Also, threats of terrorism to major tourist destinations--Las Vegas, in particular--have resulted in low attendances, forcing the tourist industry to concentrate on discounted room and airline rates instead of planning new hotels and motels to attract consumers. LASN sees this segment turning around in 2003, posting 10-15% gains for each of the next three years. Conservation & Development One of the Construction industry's key words in 2002 was "green," and not just financially. Efforts to "keep America beautiful" have found a place in the building industry in everything from design plans to construction materials. "Green building" became a primary focus this year, as more landscape architects, contractors, distributors and retailers considered various ways to incorporate energy saving features into their design plan or product, or technique. For instance, DarkSky, an international lighting conglomerate, and ENERGY STAR, founded by the Environmental Protection Agency, have staked their claims into the conservation building market with products focused on light conservation. A look at the graph shows that conservation building is experiencing a nice, steady growth that is expected to increase as Congress continues to pass bills that either mandate stricter conservation laws, or allocate funds towards building cleaner, safer home and commercial environments. Conclusion As we enter the middle years of the first decade of the 21st century, almost every segment of the construction industry looks to be better off than it was in 2002. So plan for slow and steady growth and be proud of the fact that you are a part of an industry that will continue to lead the nation on the road to economic recovery.

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June 17, 2019, 8:46 am PDT

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