For some time, I have asked myself (and others), “What was so great about the Great Recession?” This economic crisis has been considered by the International Monetary Fund (IMF) as the worst global recession since the Second World War. Its impact has been felt in almost every industry imaginable, and particularly in the industry of the It ran its course for 18 endlessly long months between 2007 and 2009, with the worst period occurring in mid-2009.
How did it affect the commercial construction industry and what happened or will happen almost 5 years after the official “end” of the Great Recession?
What happened?
The construction industry is used to cyclical swings, but the Great Recession was not a typical recession or cyclical swing. No sector of the construction industry was spared the harsh impact of the Great Recession; non-residential, commercial, industrial, or heavy and civil engineering.
One aspect of the recession that is not often mentioned is that the cycle boom of the construction industry was directly followed by the recession, leaving a large glut of residential and commercial real estate on the market.
As the recession deepened, homeowners defaulted on their homes, others did not buy homes as planned, and investors became extremely cautious about financing new construction projects.
2012 – 2013 was forecast to be a period of growth and non-residential construction activity was expected to continue its recovery. Once again, there were delays in the recovery, driven in part by the government and financial institutions:
- A sequestration of the federal budget that results in a reduction in public spending.
- A federal government shutdown.
- Credit restrictions imposed on construction projects, mortgage loans, loans in general.
- Increase in long-term interest rates based on the expectation that the government will reduce its stimulus program.
Those factors, and the extremely slow recovery of the world economy, certainly had a direct and negative influence on the construction industry.
Moving on to 2015
So what is the state of commercial construction in 2014 and beyond? The recovery is happening, but not at a fast pace. Factors that (according to industry watchers) influenced growth in 2014:
- Weather-related delays in projects earlier in the year.
- Persistent sluggishness in the institutional market and lower construction spending projections.
- Financial institutions continued with their restrictive credit practices.
Is there any good news? Yes! Let’s look at some of the more favorable changes in 2014 and some positive indicators for 2015:
- Some relaxation of credit restrictions; loans increased 4 percent in the second quarter of 2014, most related to the commercial real estate industry.
- Commercial construction projects are increasing rapidly in various regions of the US, particularly in Texas (Houston) and the South in general, and New York (Rochester and New York City), Massachusetts (Boston), and Louisiana (New Orleans).
- Consumers are “cautiously optimistic” and spending has increased, as have job gains.
The commercial construction industry was and continues to be deeply affected by the Great Recession. But industry watchers, like consumers, are cautiously optimistic (with more emphasis on caution than optimism) that the industry is moving slowly and steadily.