Solid Year Expected for Commercial Construction

Commercial construction, one of the last industries to recover from the most recent recession, is poised for the best year since 2001, contributing more to economic growth just as home building starts to ebb.

Job growth and falling vacancy rates may push investment in nonresidential construction up 9% this year to $531 billion, the most since at least 2001, according to Associated General Contractors of America in Arlington, Va. The rebound comes after spending dropped more than 25% from its peak in 2000 as the economy stalled and the Internet bubble burst, leaving more than a quarter of the office space vacant in some markets.

“After six years of recession-like conditions in the industry, 2006 is shaping up as the year that will launch a nonresidential expansion, picking up some of the slack from a cooling residential market,” said Kermit Baker, chief economist with the American Institute of Architects in Washington.

Architectural billings, a leading indicator of construction, have risen 12 months in a row, according to the organization, which predicts a 5% growth rate for the industry this year in inflation-adjusted terms.

The National Assn. of Realtors’ index of leading indicators for commercial real estate has increased in nine of the last 10 quarters.

The Standard & Poor’s REIT composite index of 100 stocks jumped more than 30% in the last year, and REIT bonds have outperformed the U.S. corporate bond market this year, rising 0.7%, compared with a 0.4% loss for the broader market. Investment in existing commercial real estate rose 44% to a record $268 billion in 2005, according to the Realtors’ group in Washington.