Nonresidential: Commercial Environment Improves

Posted by Rumin Mann
January 31st, 2011

Commercial construction spending is still slipping lower but most market drivers are now neutral or positive. The only negative indicators are year/year rental rates and construction starts, but these measures appear to have stabilized in the last few months. The AIA index of design work underway moved up to 54 in December, after being stuck near the 50 level for about six months. A reading over 50 signals a rise in construction starts ahead. There have been some spot rises in commercial starts since last spring but have been sustained. Commercial construction starts have stabilized well above the cyclical low point in June 2009. The starts trend was clearly upward from the beginning to the end of 2010. Starts are refilling the pipeline and will lead to slow growth in spending at commercial jobsites beginning around yearend.

The economy is awash in liquidity so large lenders are beginning to loosen requirements for equity participation which makes loans for large projects more available. Funds continue to flow into real estate investment trusts.

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