4% Decline in Commercial Building Forecast for 1988

Construction contracts will drop 4% this year, led by steep declines in office and other commercial building and lesser drops in housing and public works projects, according to a forecast released Wednesday.

Builders will commit to $246.2 billion worth of new contracts in all of 1988, compared to $255.2 billion last year, according to an update of the 1988 Dodge-Sweet’s Construction Outlook, which is put out by McGraw-Hill Information Systems Co.

In coming months, construction activity will only be slightly affected by the stock market crash of last October, the McGraw-Hill unit said.

“Since October, consumer confidence has been shaken, federal budgetary restraint has been tightened and expectations for the economy’s growth in 1988 have been lowered,” said George A. Christie, chief economist at the company. “At the same time, however, the outlook for interest rates has brightened.”

Accordingly, so long as a recession is avoided, this mix of positive and negative developments will not pose a serious threat to a credit-sensitive industry such as construction, he said.

Christie predicted that non-residential building would drop 7%, to $89.5 billion, this year, led by the “highly overbuilt office market.”

Office building activity should drop by 14%, to $19.2 billion, and will have to fall even more “if the office vacancy rate is to shrink from its current 20-plus percent,” he added.

Reduced consumer spending and weaker home-building together could mean a 12% drop in the retail sector, to $21.6 billion, while industrial building should show an increase of 6%, Christie said.

While many would-be home buyers remain on the sidelines in the wake of the market crash, lower interest rates will lure others back into the market, he said.

Even so, single family home building will ease 1%, to $84.9 billion, and multifamily housing will slump 4%, to $26.3 billion, dragged down by a large surplus of apartments, he added.

The report predicted that non-building construction would be pulled two ways in 1988, with environmental building increasing by 2% and transportation building down by 4%.

As a result, total non-building construction will shrink by 1% overall, to $45.1 billion, it said.

On Wednesday, the Commerce Department reported that housing construction suffered a second consecutive monthly decline in January, dipping to the weakest pace since the end of the last recession.

The 1.9% January decline in construction of single-family homes and apartments was more severe than had generally been anticipated.