"The overall level of construction activity was quite healthy during 2003, thanks to the robust volume of single family housing," stated Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction. "At the same time, it was a different picture for construction's other sectors. The tough fiscal climate in 2003 dampened institutional building, and caused public works to lose momentum after four straight years of expansion. Commercial building in 2003 weakened further, but on the plus side this sector showed it was turning the corner, as gains for stores and hotels partially offset declines for offices and warehouses. Moving into 2004, continued growth for total construction will require more broad-based improvement from commercial building, since it's expected that single family housing will ease back from its exceptional 2003 pace."
Nonresidential building in December retreated 3%. School construction, the largest nonresidential structure type by dollar volume, fell 10% for the month. Other structure types posting December declines included warehouses, down 1%; stores, down 4%; transportation terminals, down 33%; and hotels, down 39%. Structure types showing gains for the month included health care facilities, up 6%; offices, up 12%; amusement-related projects, up 19%; and manufacturing buildings, up 40% (compared to an extremely weak November).
For 2003 as a whole, nonresidential building fell 3% to $149.7 billion, a decrease less severe than the 9% drop in 2002. Weakness was still present for commercial construction, which was down 6% in 2003 due to an 11% decline for offices and a 16% decline for warehouses. Murray indicated, "The office correction was not as widespread as in 2002, when contracting plunged 25%, and the 2003 pattern by metropolitan area showed the minuses now being joined by some pluses."
For 2003, new office starts revealed dollar volume declines in such cities as Chicago (down 4%), Atlanta (down 23%), Washington (down 24%), Dallas (down 27%), and New York (down 48%), while gains were reported in such cities as Sacramento (up 12%), Phoenix (up 27%), Minneapolis-St. Paul (up 59%), Baltimore (up 69%), and Fort Worth, TX (up 261%). Of significance, the commercial sector in 2003 was cushioned by the growth reported for stores and hotels. Store construction in 2003 grew 7%, boosted by continued expansion from such firms as Wal-Mart and Home Depot, plus the trend toward such retail formats as open-air shopping centers. Hotel construction advanced 8% for the year, helped by the start of several large hotel/casino projects.
The institutional side of the nonresidential market in 2003 was generally weaker, reflecting the impact from a tighter fiscal climate. Although school construction was able to rise 3% in dollar terms, helped by more renovation work, square footage for this structure type fell 6% during 2003.
Construction of health care facilities dropped 7% in dollar terms, as several large hospital chains faced greater financial scrutiny. Reduced construction was also present for public buildings (courthouses/detention facilities), down 6%; transportation terminals, down 7%; amusement-related projects, down 9%; and churches, down 13%. The long-depressed manufacturing plant category posted a dollar volume gain of 8% in 2003, helped by a growing number of plant upgrades. The 2003 level for manufacturing construction was still 59% below the most recent peak in 1997.
The annual figures for total construction in 2003 showed growth in four of the nation's five major regions - the West and South Central, each up 7%; the South Atlantic, up 5%; and the Midwest, up 3%. The Northeast dropped 10% during 2003, due to larger percentage declines for its commercial building and public works sectors compared to the other regions, combined with a more modest performance by its housing sector.