Spending on nonresidential construction, which includes commercial and institutional facilities such as schools and churches, is expected to drop more than 20% this year before rising again in 2011, according to the American Institute of Architects (AIA). Poor conditions in the market caused by an oversupply of these facilities, dwindling demand for the space, still falling commercial property values, and constricted lines of credit will reduce contracts through the rest of 2010, according to the AIA survey of construction forecasters. “There are a number of factors at play here that are contributing to one of the steepest construction downturns in generations,” said AIA chief economist, Kermit Baker. But in 2011, the market could rebound and increase spending by 3.1%. There have been increases in commercial property values as of late. The aggregate value of commercial real estate backing commercial mortgage-backed securities (CMBS) has climbed back to 76.6% of their original loan balances in May, according to the loan-sale advisor DebtX. “We have businesses nervous about expanding their facilities, a fragile financial sector, excess commercial space, and general unease in the international economy,” Baker said. Baker added that the market should turn around by the middle of 2011. Retail and hotels, he said, will see the strongest growth followed by health care, amusement and recreation facilities. But before retail and hotel properties see new gains in 2011, AIA projects more cuts this year. Hotel construction spending could fall as much as 43%, and retail properties could see a cut of as much as 25%. Office building spending could drop by 29%, and industrial construction is projected to fall 21%. Institutional properties should have smaller cuts. Amusement and recreation facilities could drop 14% in 2010, followed by school construction cuts of 13%. In 2011, though, AIA projects hotel spending to increase 8.7% and retail construction to improve by 7.6%. Hospital and healthcare facilities could increase 5.1%. Write to Jon Prior.
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