As the new year approaches, 2008 will be another strong year for nonresidential and nonbuilding structures construction. Total construction will be just over $1.2 trillion, an 8 percent gain over this year. The nonresidential and nonbuilding structures sectors will be more than strong enough to offset the weak residential market. The strong outlook is based on the assumptions that consumer spending will remain strong, a national recession will be avoided and that the sub-prime lending situation in the residential sector will not have an impact outside of the sector and on Wall Street. The predicted growth in 2008 is due to multiple factors, including a growing and aging population and aging infrastructure.

Residential construction began to decline in 2006 and fell further in 2007. The 2008 residential forecast predicts an increase of three percent. Because construction put-in-place is forecast in current dollars, a 3 percent increase in residential construction is actually a decline once inflation is factored in. The residential sector will not reach its previous 2005 high until 2011, when it is expected to reach $668.5 billion.

Single-family construction has been the weight dragging down residential construction. It began decreasing in 2006 and decreased by 25 percent in 2007. After adjusting for inflation, single-family construction will decline again in 2008. Housing starts will decline more than put-in-place. The impact of housing starts on put-in-place construction is lessened due to increasing labor and material costs and use of higher-end materials.

Multifamily construction has been very strong since 2004 and helped to mitigate the loss from single-family construction for the past two years. However, the pace of multifamily construction is expected to slow. Condo construction, while at a historically high level, is slowing and will provide less support for residential construction. Residential improvements are also expected to slow for a few years, but will pick up as improvements need to be made to homes built during the 1990s housing boom.

Strength in Nonresidential
Nonresidential construction will remain strong in 2008. It will increase 9 percent to just more than $490.1 billion. Four nonresidential segments will see double-digit growth in 2008: office, healthcare, public safety and transportation. The nonresidential construction sector is expected to remain strong through 2011, with an annual growth rate of around 8 percent.

Office construction put-in-place will increase 10 percent in 2008 to $68.8 billion. Although this upward trend is not as dramatic as the increases seen in 2006 and 2007, it will likely continue at a moderate pace through 2011. The demand for office space is being driven by employment growth rates; with the greatest increases occurring in office-using segments. Additionally, companies are realizing larger profits and feeling confident in expansion plans for staff and space.

Healthcare construction put-in-place will increase 13 percent in 2008 to $53.8 billion. The healthcare segment will experience the strongest growth through 2011. It will experience double-digit annual growth each year, for the next four years. The drivers for healthcare 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, the 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 found that more than 50 percent of hospital survey respondents reported needing to build due to aging facilities. The vast majority of building activity will occur within the hospital segment, comprising approximately 69 percent of total healthcare construction.

Population Impacts
Public safety construction put-in-place will increase 11 percent in 2008 to almost $14.2 billion. Overcrowding remains a recurring 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 percent in 2005, 2.6 percent in 2006 and 2.8 percent in 2007. For perspective, consider that the national population growth rate hovered around 1 percent annually during these same years.

Transportation construction put-in-place will increase 10 percent in 2008 to just over $35.4 billion. Severely congested roads are creating a demand for mass transit and increased use of
public transportation. These gridlocked roads are also increasing demand for railroad construction for both passenger and freight travel.

In October 2007, the Senate approved a six-year, $11.4 billion funding bill for Amtrak. Airports are also crowded and seeing increasing delays, which will drive investment in capital projects. Homeland security measures and the increasing use of post-panamax vessels, or vessels that are of the maximum dimensions to fit through the locks of the Panama Canal, will contribute to port construction.

Infrastructure Keeps Pace
Nonbuilding structures construction will also remain strong in 2008. It will increase 7 percent to just over $176.8 billion. The highway and street segment is the largest segment and is also receiving the most attention by the media and the general public. Power construction is expected to begin taking off after 2010. All of the nonbuilding segments are expected to experience strong steady growth in 2008 and through 2011.

Power construction put-in-place will increase 8 percent in 2008 to almost $48.4 billion. Power construction has been a hot topic for the past few years but large investments have not yet come to fruition. Major increases in power construction spending will begin to materialize in 2010 and beyond, and will be the beginning of bringing the amount of construction to an entirely new level. Renewable or green power will gain in its share of the total power generation market. However, traditional sources will remain the largest generators of power. Several coal projects are awaiting new CO2 regulations and several companies have expressed interests in applying for permits for new nuclear plants.

Highway and street construction put-in-place will increase 7 percent in 2008 to just over $83.5 billion. Congested highways and crumbling infrastructure are clearly problems. The current highway bill, the Safe, Accountable, Flexible, Efficient Transportation Equity Act: a Legacy for Users, will expire in 2009. Congress seems to be aware that more investment is needed and may increase funding in the next bill. The bridge collapse in Minneapolis last summer opened some discussion in Congress for an additional bridge funding bill. Escalating highway and street construction costs mean that less construction is being built per dollar.

Sewage and waste disposal and water supply construction put-in-place will each increase 7 percent in 2008 to just over $22.1 billion and $14.4 billion, respectively. A growing population and aging infrastructure are driving demand for construction in both segments. Annual growth rates will be between 5 percent and 6 percent for each segment through 2011. More investment is needed and will come, but it will not be until after 2011.

Conservation and development construction put-in-place will increase 8 percent in 2008 to more than $6.6 billion. Brownfield development and Superfund projects will drive steady growth through 2011. Development from the U.S. Army Corps of Engineers looks to drop again in 2008. 

Heather Jones is a construction economist in the research services group at Raleigh, N.C.-based FMI Corp. She can be reached at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it