Construction Outlook for 2010; Partly Cloudy Giving Way To Afternoon Sunshine.

Are we there yet?  It's the question that get's asked over and over.

 No. But at least it looks like we are finally on the road to getting there. 

 The “we” to whom I refer is the building construction community here in Philadelphia.

 The “there” is anywhere but where we are now, because this has been a very difficult ride.

The construction side of the Philly market has been rocked, two of the largest Philly contractors have been sold to out of town companies, and rumors of other sales are in the air.  There’s a re-shuffling going on now that has the potential to put established relationships by the wayside as builders, architects and management firms change hands, partners and staff. 

Architecture firms are trying to hang on, many have furloughed hours and are running on diminished staff.  It was just a few years ago that a friend and partner in one of the biggest Philly architecture firms told me they were desperate to hire seasoned architects from anywhere they could get them, and to please call if I knew anyone who was looking.

Overall, architectural billings are still very soft, though inquiries are trending positive for institutional and multi-family projects.  The Architectural Billings Index (ABI) is the bell weather for builders and construction management firms; our contracts tend to lag the ABI by approximately nine months.  The Architecture Billing Index published by the AIA is an important barometer for everyone in the construction industry to watch. 

After consolidating information from the ABI, the Philadelphia Federal Reserve ,  Reed Construction Data and others I definitely have a warm and fuzzy about 2010 being a whole lot better than 2009.  I know, I know, that’s not saying much since we’ve been hanging at the bottom for so long, but it IS positive.

It looks like the components for recovery and growth are in place for us. It must start with renewed interest in building projects because developers and business have been frozen for over a year.

Construction is a service industry; we need business growing and thriving to have a reason to exist.  We need housing to grow (even though we’re non-residential builders) because new housing drives retail and office expansion.  

We also need the health care debate to end; because pharma and medical care providers will postpone decisions about building until the new course is known.

It looks like we have most of these components moving in the right direction, just slowly.

The AIA report shows institutional construction and multi-housing gathering some strength, with a very positive trend on inquiries. Solid reports on inquiries suggest that demand and desire are out there, which is essential to recovery.

The Philadelphia Federal Reserve’s survey report polls business about their expectations for cost, inventory, shipments and other criteria.  The six month outlook by respondents to this survey was definitely optimistic. 

Reed’s data is cautiously optimistic, with expectations for modest growth  in the second half of 2010. Reed was particularly optimistic about the Philadelphia market citing positive news in employment numbers, real estate and manufacturing.

I’ve been arguing for months that once the Dow cleared 10,000, life would improve.  It has helped to stabilize conditions.  I believe that investors and institutions responsible for endowments need to believe that a Dow over 10,000 and climbing is reasonable.  Current economic growth may be slow but combined with the current big gains in productivity; investors can make a clear justification that the 10,000 plus Dow is not a blip.

There appear to be all the required ingredients for recovery and the general consensus is for an improving but modest 2010.  Projections for 2011 are for a substantially improved construction market lead by pent up demand for education facilities with additional strength in religious facility and office construction.  We’re almost there.

Copyright 2010 William Graves InSite Construction Management, ISCMplan.com.  All rights reserved.