Commercial construction has likely bottomed out, but that doesn’t mean we should look for a quick turnaround in the sector. Similarly, residential construction has also seen the worst, but the comeback will likely be slow. Those were the views of two economists at the 2012 Foundations Conference hosted by Hanley Wood in Chicago on Sept. 26 and 27.
“Must of the decline in commercial property prices has reversed itself,” said Mark Calabria, director of financial regulation studies at the Cato Institute. These prices hit bottom in 2009. The commercial sector “seems to be ahead of residential,” he added.
Specifically, the growth of shopping on the Internet will result in an increase in warehouse construction. These facilities house the goods that are mailed to customers. However, that would slow the growth for traditional brick and mortar stores. Retail and office demand remains muted, as “what is being brought to the market is not being absorbed yet.”
Finance, insurance, and real estate account for one-half of the office market. “Until you see these services come back, the office market is going to be a drag,” Calabria said.
On the residential side, Thomas Lawler, president of Lawler Economic & Housing Consulting and former chief economist at Fannie Mae, forecast single-family housing starts of 520,000 this year, increasing to 650,000 in 2013, 750,000 in 2014, and 1 million in 2015. After many starts and stops, Lawler said the housing recovery this time is “for real,” but added, “back to normal is still a few years away.”