Although only one sector of the construction industry, activity in the residential building market has a significant effect on total construction figures for a given year, and the 2007 decline in residential building is the main reason total construction activity will have declined by 8 percent nationally and by 6 percent in California by year's end.
This overall construction forecast was part of a presentation given by Cliff Brewis, senior director of editorial for McGraw-Hill Construction, during a Construction Management Association of America San Diego Chapter's dinner.
Brewis's presentation included a summation of construction activity that has occurred on a national, statewide and local level in the various building sectors this year, as well as a forecast for 2008.
Widely published has been the near historic decline in residential building activity, specifically single-family construction, which has occurred on a nationwide and local level this year.
According to Brewis, housing starts will begin to turn around in California sometime in 2009, which is the same time he predicted single-family homebuilding activity coming back in San Diego.
Single-family permit activity is likely to spike in the coming months locally, a result of more than 1,000 homes being destroyed in the recent fires, he said.
Multi-family construction activity statewide will have declined 8 percent by the end of this year when compared with activity levels experienced in 2006.
"The amount of building (statewide) is still at a fairly high level but this will not be sustained because the demand for this product is not there," Brewis said, adding they'll be an overall correction in late 2008 or 2009.
In San Diego the correction has already started, as the county has already experienced a significant drop in multi-family activity. However, this correction will continue to run into at least 2008.
Public construction activity
With $43 billion worth of bonds being passed and an additional $43 billion worth of bonds waiting future approval in the next several years the amount of public works construction in California and San Diego should remain strong.
While $43 billion has been approved, Brewis noted that only $9 billion worth of those bonds don't require additional legislative work. He anticipated bond money would not be applied to projects until 2009.
Nationwide 25 states will have negative numbers in terms of educational construction activity in 2008 and 25 states will experience an increase in activity.
However "almost all of them (states) are posting strong number in higher education (facilities)," Brewis said.
Locally the University of California San Diego (UCSD) has several ongoing projects and several others in the design stage.
San Diego State University is in the process of finalizing its Campus Master Plan and programming is under way for several University of San Diego projects. California State San Marcos also has several projects in the planning stages, including a Social and Behavioral Sciences Building.
In San Diego, the Pomerado Hospital expansion recently began construction and a cardiovascular center is nearing completion at UCSD.
"It's (San Diego) probably a better market for healthcare than in a number of other parts of the country," Brewis said.
With the highway bill passed nationally and a significant amount of freeway expansions planned by Caltrans this type of construction has been trending upwards and will continue locally and statewide moving forward.
Brewis forecasted an increase in future investment in this sector. Currently the San Diego County Water Authority and several local water districts have projects either ongoing or in the design/planning stage.
Entering into 2008, Brewis predicted more money will be made available for the construction of new prison facilities throughout the nation, as nearly every state is addressing the issue of prison overcrowding.
A significant amount of public works construction is planned for California, however the recently adopted off road diesel equipment emissions standards will affect when and how quickly those projects begin and reach completion.
"We don't appreciate the degree to which taking that much machinery off the marketplace has the potential to slow down construction," he said, adding the state can free up funds, but if one out of every three machines is taken out of the marketplace a capacity problem exists and contractors will increase their bids, which will decrease the amount of work that can be completed under the bonds.
With vacancy rates coming down slower than in other periods of recovery, businesses are becoming far more disciplined in terms of adding staff and as a result office construction will "ramp down," as he predicted a soft end of 2007 and beginning of 2008 nationally.
In both California and San Diego, markets have already hit a peak and are currently at a plateau, which he anticipated will continue into 2008.
Nationally, a 3 percent decline in terms of office building construction is predicted in 2008, as office developers grown more cautious in terms of planning new office developments.
Despite this overall decline, Brewis did say there still remains plenty of office construction work throughout the country.
By year's end retail construction activity will have declined 7 percent when compared with last year. However, Brewis said the retail market represents one of the most stable markets in terms of long-term activity.
"California and San Diego are almost an exaggeration of the sense of stability in this marketplace," he said. "I don't think it will sustain a positive number in 2008, but we see a stable marketplace in comparison to other sectors."
Construction in this sector has accelerated overall on a nationwide basis. In San Diego there are a number of projects that could be breaking ground in the near future depending on developers.
While opportunities for future hotel construction exist in San Diego, Brewis said the sector wouldn't sustain the rate of growth that has been experienced in past year.
As 2007 comes to an end, Brewis gave his overall construction forecast for the nation.
"In 2008 the total amount of construction activity will be off marginally from where we were in 2007," he said, adding there will be less decline overall in terms of single family building and the commercial sector will run either marginally negative or positive.
Construction materials, which have experienced large run ups in price as recent as 2005, could experience small or more noticeable increases in prices depending on type of material and what building sectors that material is used in.
"Products that are heavily dependent on single family is where the less stress on prices is," he said.
In San Diego the material problem is aggregate, as there is a 50-year demand of 1.164 billion tons of aggregate. However, there are only 198 million tons of permitted reserves, equal to 17 percent of the total 50-year demand.