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Construction

Construction

While the effects of Hurricanes Katrina, Rita and Wilma caused some slowing in economic growth and anxiety over construction cost increases in recent months, there are leading indicators that cause one to be optimistic about future growth opportunities in the construction industry.

With 2005 suburban single-family housing growth reaching record highs, the suburbanization of previously undeveloped areas continues to expand the traditional Chicagoland regional boundaries. Although a less robust year is forecast for single-family housing starts in 2006, the rate of expansion has driven the demand for infrastructure support many areas have never seen. Certainly the demand for civil/highway construction exists in order to more capably support the increased commuter traffic loads. However, with housing and population growth typically come the demands for greater supply, therefore greater construction opportunities of K-12 education facilities, hospitals, retail developments and public and municipal facilities (i.e. police and fire stations.)

Predicted marginal economic growth for 2006 and a relative relaxation of financial institution lending standards over previous years will be catalysts to growth opportunities in the multi-family residential and commercial construction markets. In the City of Chicago, construction remains focused predominantly on the multi-family residential market. Whether purchased as investment, as a city home, or to accommodate the “empty nesters,” one cannot avoid the drastic increases in for-sale supply that have entered the market since 2000. While some may argue that the long-term continued growth in this market is not sustainable due to simple supply and demand, short term is certainly steadily growing and does not show signs of softening. Trends in new commercial office market construction are positive, with multiple office buildings being considered by development teams for starts in 2006 — despite continued high vacancy rates looming over the city.

In 2006 and beyond, public sector construction projects will provide growth opportunities. Chicago Public Schools and the Metropolitan Pier Exhibit Authority will continue to build, not to mention the construction growth opportunity with the billions of dollars being spent in connection with the modernization of O’Hare International Airport. The newly signed federal transportation bill also will allow for construction programs to be released by the Chicago Transit Authority and the Illinois and Chicago Departments of Transportation.

Finally, the improved financial health of the state budget, coupled with interest rate growth that spurs institutional endowments and individual financial gift-giving increases, will provide for construction revitalization in the institutional market. In 2006 you will begin to see major capital construction programs on college and university campuses, museums and other cultural venues. Two projects Turner will be building, the construction of the new North Wing at the Art Institute of Chicago and the Center for Biomedical Discovery at the University of Chicago, are evidence of this.

While 2005 was a growth year for the construction industry, it remains to be seen what 2006 will hold. All initial indications, however, cause me to be bullish on what its potential can be.

Stephen W. Fort
Vice President and General Manager,
Turner Construction Company

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