John Caulfield in BuilderOnline, attempts to predict the trending in the Non-Residential market (and read the tea leaves), as it is suggested that the economic downturn seems to be taking its toll on the non-residential sector, which despite a strong year in 2007 and gains as recently as last month, could be faltering a bit. 

Last week, McGraw-Hill Construction estimated that non-residential building during the five months ended in May 2008 had increased 13 percent to $102.3 billion, based on its assessment of projects that were started during that period. However, all that glitters is not gold. Drilling down a bit with respect to these numbers reveals some reasons for concern about this sector’s health.

• Falling Size: The projects being started are smaller: Square footage for non-residential building was off by 9 percent in May 2008 and by 23 percent for 90 days ended that month.

•  Decreased Square footage: Commercial construction (e.g., retail stores) square footage was off 39 percent and office building was down 34 percent.

•  Increasing Cost: The cost per square foot for non-residential building had “skyrocketed” by 34 percent over the previous six months. The housing analyst judges new-order trends as “disappointing.”

One of the more reliable barometers of future non-residential activity—the Architecture Billings Index, which the American Institute of Architects (AIA) calculates—stood at 43.4 in May 2008. That’s better than the 39.7 index in March 2008, but is below the threshold of 50 that indicates a decline in billings.

Some Good News: There appears to be strength in some areas such as public infrastructure, schools, healthcare, and institutional construction. The money for many of these projects had been appropriated years ago, before the downturn in the general economy became apparent. Following a 17 percent increase in 2007, non-residential building is projected to grow in 2008 by a modest 1.8 percent to $465.7 billion, which is expected to level off over the following two years, and then increase again by 7 percent each year in 2011 and 2012 to $536.1 billion.

• Biggest Projected Gains: In 2008, the biggest percentage gains in non-residential construction will most likely come from public safety and transportation (8 percent up each), Other “bright spots,” might be found in construction related to homeland security and prisons, as the inmate population in the U.S. is expanding at a faster rate than the population in general.

• Biggest Projected Falloff: The biggest falloffs in the construction of religious buildings (10 percent off).

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