Construction Investment

The recent GDP report provided an update on Private Construction Spending.

The residential spending freefall has been reflected in housing starts.  Residential investment dropped from nearly $700bn in 2006 to $225bn last year.  Even though non-residential spending never reached the heights of residential, it has gone from $400bn in 2008 to $250 last year (a 37% drop).  Some of the drop was picked up by various governmental stimulus programs, including preferred financing available thru "Build America Bonds."  This financing program ending 12/31/10, so all funds available thru this program are known.  It seems highly unlikely that the government will provide any further stimulus.

So the question is whether private investment will be revived any time soon.

Private investment in offices depend primarily on vacancy rates.  If employment gains continue, vacancy rates should stabilize &/or fall and office spending will increase.  Friday's Employment Report showed a continued trend towards job growth.  Developers are going to want more proof before proceeding.

Hotel Occupancy rates are showing a pickup, but are still below prior peaks.  High gas prices may affect travel plans this Summer, but occupancy rates bear watching during the peak season.  Lodging got overbuilt in the last boom.  I wouldn't expect much new construction from lodging the next couple of years.

Can't expect much help from Malls.  Regionals are doing well, but the REITs are buying them, not building them.

In the meantime, Apartment vacancies are at a 3 year low.  A poor residential housing market is pushing people into apartments and other rental arrangements.  This is spurring Apartment construction across America including Seattle where several projects are getting underway.
From the Seattle Times, "With demand apparently rising faster than supply, developers are rushing to fill the gap. Twenty-two of the 28 projects that have appeared on the agendas of Seattle design-review boards so far this year are apartment proposals".I would suspect Apartment construction will lead private non-residential construction the next couple of years.

Charts from Calculated Risk.