Stimulus dollars to cushion construction spending drop

By Buck Wargo

Friday, March 19, 2010 | 3 a.m.

Construction spending in Nevada will drop more than 10 percent in 2010 compared with 2009, but increases in federal stimulus dollars will cushion the decline, according to a construction economist.

Cliff Brewis, senior director of editorial operations for McGraw-Hill Construction, told construction industry executives March 10 at a conference co-sponsored by the Associated General Contractors of Las Vegas that 2010 will be a soft year in terms of overall construction, and the start of the recovery in the industry won’t be felt until sometime in 2011.

McGraw-Hill projects $4.99 billion in construction spending statewide in 2010, down from $5.56 billion in 2009. Construction activity peaked in 2006 at $16 billion, but declined to $13.7 billion in 2007 and $7.6 billion in 2008, the firm reported.

The $787 billion federal stimulus package will fill some of the void in the economy caused by lack of spending in the private sector, especially in construction, Brewis said.

“The private side isn’t going to contribute significantly to construction in the near term,” he said.

Of the $130 billion in federal dollars set aside for construction projects, Brewis said 30 percent was allocated in 2009 and 50 percent to 60 percent will be spent in 2010.

Overall, McGraw-Hill projects $631 million will be spent on highway construction in 2010, up from $559 million in 2009. In addition, $224 million will be spent on water infrastructure, up from $167 million in 2009. Another $247 million will be spent on government building projects, he said.

With the exception of highway projects, it is difficult to push out federal dollars quickly because the system isn’t set up to do so, Brewis said. Plans must be finished and bids awarded, which slows the process.

Brewis said the recession has ended nationwide and although there was an over exuberance during the good times that it would never end, the marketplace has a level of negativity today that is overstated.

“We are in the period between the recession and the recovery,” Brewis said. “We are in the process of starting that recovery, but it will look more shallow than it has (in the past).”

What will lead to that recovery is the creation of jobs because that will pump more money into the economy and increase the need for office and retail space, he said. Companies should start to hire again in 2010 with growth in the 1 percent to 2 percent range, Brewis said.

An overriding concern about the economy is what will happen to spending among state governments because of their sharp declines in revenue, Brewis said. That means jobs could be lost.

In commercial buildings, Brewis said the percentage of financially troubled properties is equal to the value of buildings constructed in any year. That suggests it will take a year of correction before the commercial market starts to turn around, he said.

Office is likely to recover quicker than retail construction in Las Vegas because the marketplace overbuilt retail in a greater degree, he said. It could be late 2011 or 2012 before retail construction begins to recover.

The office sector could bottom out in 2010 and start to recover in mid-2011, Brewis said.

McGraw-Hill projects $124 million in office construction in 2010 in Nevada, down from $132 million in 2009. The market peaked at $391 million in 2006.

As for retail, McGraw-Hill projects $99 million in construction in 2010, down from $104 million in 2009. The market peaked at $863 million in 2007.

The firm projects $21 million in spending on industrial projects, down from $85 million in 2009. The market peaked at $238 million in 2006.

Spending on multifamily housing is projected at $129 million in 2010, down from a peak of $2.5 billion in 2007. In the hotel market, spending is projected at $83 million in 2010, down from a peak of $3.7 billion in 2006.