Surprising Slowdown in Nonresidential Building: EcoPulse – Bloomberg 06-18-13

Salient to Investors:

Spending on lodging, office, commercial and manufacturing buildings grew 5.6 percent in April, the slowest pace in almost 2 years.

Kermit Baker at the American Institute of Architects said this type of construction normally exhibits late-cycle growth because the design and building process may take several years, while activity has been unusually volatile since the recession ended in June 2009, with only brief flashes of growth. Baker said the Architecture Billings Index is a good, solid leading indicator of non-residential construction 9 to 12 months down the road. The commercial and industrial component of this index fell in April to the lowest level in 7 months.

Brian Jacobsen at Wells Fargo Advantage Funds said investment in non-residential projects historically is on par with spending on homebuilding. Jacobsen said the Architecture Billings Index confirms other data, such as vacancy rates, pointing to a slowdown in construction in 2013.

Reis Inc. said the US office vacancy rate was 17 percent in Q1 versus the quarterly average of 17.4 percent in 2011-2012, while net absorptions for metro-area offices rose to almost 4.1 million square feet in Q1 from 3.3 million in Q4 2012 and the average of 4.3 million square feet since 2011. Ryan Severino at Reis said the absorption rate won’t accelerate much in the next 2 to 3 quarters.

Russell Price at Ameriprise Financial said excess capacity of commercial, industrial and office space has yet to be fully absorbed and is stalling the construction recovery in these industries, while limited credit is holding back the industry. Price forecasts that private non-residential construction spending will expand 1 percent in 2013, the 17.6 percent gain in 2012 was unsustainable, and the billings index will see sustained improvements later in 2013.

Stephen Volkmann at Jefferies said the sluggish recovery in non-residential construction is largely a confidence issue, and a fair amount of pent-up demand in commercial construction is good reason to have a positive bias on the industry.

Read the full article at http://www.bloomberg.com/news/2013-06-18/surprising-slowdown-in-nonresidential-building-ecopulse.html

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