(Crain’s) — Local construction starts are forecast to climb 18% this year, as increases in single-family housing construction and public works projects help end a three-year decline.
Yet the gains won’t feel like much of a salve to the Chicago-area construction industry, as the $11.51-billion value of the projected starts in 2010 is just more than half the peak of $21.77 billion in 2006, according to McGraw-Hill Construction Research & Analytics.“We’re still going to have a depressed construction market in 2010, it’s just that we’re coming out of that horrible experience in 2009,” says Kim Kennedy, manager of forecasting with McGraw-Hill Construction Research, a Bedford, Mass.-based unit of McGraw-Hill Cos.
Last year, construction starts plummeted 46% to $9.78 billion, marking the biggest decline here since McGraw-Hill began tracking the data in 1967. Public works and utilities were the only sectors to see gains in 2009, while the steepest falls were in commercial, industrial and institutional buildings.
From a bottom-line perspective, 2010 could be every bit as tough — or tougher — as the lack of work and the crowded competitive landscape has squeezed margins for contractors.
“It’s still painful,” says Steve Zuwala, president of Chicago-based Interior Construction Group Inc. (ICG), which specializes in upscale office buildouts. “In 2009 we had the benefit of some projects carrying over from 2008, when fees were a little bit better.”
Mr. Zuwala says ICG’s bid opportunities are up 40% compared to the same time last year, and if the firm wins enough of that work it may begin adding workers after slashing headcount some 30% from late 2008.
“It’s encouraging that the year started out with a lot of people deciding, ‘Let’s get this out for bid,’” he says. “There’ll be more activity, but the fees will be lower.”
Chicago’s 18% projected increase this year tops McGraw-Hill’s national forecast that starts will increase 11% to $466.18 billion.
Single-family housing starts are projected to climb 70% here to $1.97 billion, while multi-family housing is projected to remain flat at $940 million.
Low mortgage rates, loosening credit, falling prices and pent-up demand all stand to bolster the single-family market, where local construction starts have fallen four straight years, writes McGraw-Hill.
Apartment and condominium construction, meanwhile, won’t back bounce from three years of falling construction starts because of the big existing inventory of both apartments and condos.
“Oversupply will remain a daunting challenge in the overbuilt Chicago metro,” McGraw-Hill writes. “The building boom of 2003-2006 has created a deluge of units entering the market even while the market has turned dramatically negative.”
Chicago’s multi-family is lagging the national market, as McGraw-Hill forecasts starts will rise 16% nationwide this year.
The mainstays of the commercial sector, retail and office, are poised to have a third straight year of local declines. Construction starts of stores and shopping centers are forecast to fall 11% this year to $420 million, while starts of office and bank buildings are expected to drop 17% to $291 million.
Health care projects are poised to rise 22% in 2010 to $662 million. That comes on the heels of a precipitous 81% decline last year primarily because of the huge volume — $2.88 billion — that started in 2008, including four major hospital projects: the Ann & Robert H. Lurie Children’s Hospital; University of Chicago Hospital Pavilion; Rush East Tower Atrium, and Elmhurst Memorial Hospital.
Public works projects, buoyed by federal stimulus money, are expected to be a bright spot in 2010. Local highway and bridge construction starts are slated to climb 26% to $2.05 billion.
Roughly $86 million in stimulus transportation funds were allocated to Chicago, according to the McGraw-Hill report, with several major projects to get under way this year, including $11.6 million for Chicago Avenue improvements between Laramie and Grand avenues and $10 million for improvements to Congress Parkway.
