Jones Lang LaSalle Sees No Immediate Silver Lining in Construction Industry

Excerpts from Construction Pricing and Trends Article by Dave Dempsey, (top right photo) Managing Director, Jones Lang LaSalle

Article from Jones Lang LaSalle's Market Intelligence Monthly eReport.(Please click on this link for complete article) (http://www.imakenews.com/spauldslye02/e_article001134872.cfm?x=bcV9pcl,b5GBmtFn)

Overview

The current situation of the US economy and the subprime mortgage financial crisis has softened the commercial construction industry. Slower activity has resulted in weak demand, job losses and moderating prices for certain materials.

Commercial construction activity held up through 2006 and 2007 when the residential market was beginning to see a downturn, however, in the first quarter of 2008, business investment in structures was down 3.2 percent from the previous quarter, the first contraction since 2004.

New construction projects remained harder to finance due to tighter lending standards and the decreased availability of financing for commercial loans.

Additionally, the value of construction put in place, which is the money spent on any commercial construction project on a monthly basis, has decelerated drastically over the past six months, slowing to 1.3 percent in March compared to 15.5 percent growth a year earlier.

Outlook

Domestically, material prices, excluding steel, should continue to stabilize as domestic demand for materials has been reduced severely from a slowdown in construction. However, increased oil and raw material prices have placed additional upward pressure on regional companies and overall pricing.

Weak demand in the US and falling material prices has essentially been eliminated by the energy cost increases companies have experienced.

The weak dollar has made exports more affordable to foreign buyers, but the high price of oil, which is needed to transport materials, has offset the benefits of a weak dollar.

Looking ahead, the US construction industry will likely continue to experience softening, seeing additional job losses and falling prices for certain products, which in turn could cause wages to fall.

Stricter lending standards for commercial loans, coupled with slowing demand, will further determine how severely commercial construction will be affected over the short term.

Growth is expected to be weak for the next two to four quarters, although the duration of most commercial projects can span several years, making the industry more resilient to short term downturns in the national economy.

CONTACT: John Sikaitis, Vice President, Communications, Jones Lang LaSalle, John.Sikaitis@am.jll.com