The construction outlook for 2008 has been revised slightly downward compared to previous projections since the third quarter. Regardless of the trend, nonresidential construction will remain fairly strong in 2008 despite the housing downturn and tightening credit markets that are a drag on the economy. The nation's aging infrastructure and growing population will drive much of this construction. The health care, public safety, education, and transportation segments will help to prop up nonresidential construction.
The health care construction market includes hospitals, medical office buildings, and special care facilities such as nursing homes. The health care market will experience the strongest growth through 2011; seeing double-digit annual growth each year, for the next four years. Health care construction put in place will increase 42% from $50.5 billion in 2008 to $71.5 billion in 2011. The primary issues driving demand for health care construction are long-term and will not change during the forecasted period. These demand drivers are primarily population-and demographic-oriented (e.g., the aging population and retirement of baby boomers, and increased birth rates). Other significant drivers of construction include obsolete hospital buildings, investment funding, new technologies, and a favorable environment for Medicare reimbursement. A 2007 study by Hospitals and Health Networks magazine found that more than 50% of hospital survey respondents reported building due to aging facilities.
FMI's forecast for public safety construction put in place anticipates solid growth through 2011, increasing from $10.3 billion to $12.7 billion. The expected growth through 2011 constitutes a total increase in public safety put in place construction of $2.4 billion, or 24%. Overcrowding remains a recurring, continued theme for the nation's correctional facilities. As the number of inmates entering the penal system grows faster than the number of inmates being released, overcrowding will persist until additional facilities are built. The Bureau of Justice Statistics reported the total number of inmates in state and federal prisons and local jails increased 2.3% in 2005, 2.6% in 2006, and 2.8% in 2007. For perspective, consider that the national population growth rate hovered around 1% annually during these same years.
The education construction market is expected to lead the industry in total spending into the next decade. This upward trend will continue for the next five years. FMI expects the education construction market to grow 2% to 9% annually through 2011, and reach $121.4 billion in put in place construction by 2011. Enrollment is increasing in both the private and public education segments and private institutions plan to add more than 5000 new facilities. According to the U.S. Census Bureau, K-12 enrollment statistics are expected to remain high through 2014.
Transportation construction is expecting solid annual growth rates of 8% to 10% through 2011. It will increase 8% in 2008 to $32.1 billion and will reach $41.2 billion by 2011. Severely congested roads are creating a demand for mass transit and an increased use of public transportation. Airports also are crowded and seeing increasing delays, which will drive investment in capital projects. Homeland security measures and the increasing use of post-panamax sized vessels will contribute to port construction.
The outlook for 2008 has been revised downward slightly but is still fairly strong, particularly for certain nonresidential and nonbuilding segments. The housing sector is not expected to recover until 2009 but nonresidential and nonbuilding construction will be strong enough to offset this loss in 2008.
Heather Jones is construction economist for FMI's Research Services. She can be reached at 919-785-9335 or firstname.lastname@example.org.