An anticipated rebound in nonresidential construction across the United States has fallen somewhat flat in 2013, so it may be 2014 before commercial developers benefit from a budding national housing recovery, according to a Citigroup Inc. (NYSE:C) research note from Tuesday.
Public sector weakness, partly from squeezed state budgets and the impact of the sequester, is one factor accounting for the delay in development. Citi analysts also cited caution from developers and businesses, alongside a slowdown in global economic growth.
“The rebound of the U.S. nonresidential construction industry remains sporadic and fairly lackluster overall,” said the report, which recorded construction spending growth of 0 to 5 percent for the first half of 2013, compared to growth of 5 to 15 percent in the latter half of 2012.
Commercial development across sectors is also likely to remain uneven, according to the note. New construction in offices and retail space will “remain muted,” as the sectors face separate but ongoing business challenges.
But carving out new spaces for industrial companies will be a bright spot, as e-commerce flourishes and U.S. manufacturing and the shale energy sector grow.
“We see several indicators pointing to growth acceleration into 2014; improving credit conditions, declining vacancy rates, and follow-through from U.S. housing upturn,” wrote the analysts.
The report also noted the July 2013 Fed Loan quarterly survey from earlier in August showed that more banks reported stronger demand for commercial development loans, in the highest demand level reported since the late 1990s.
Part of the reason for optimism in 2014 is the resurgence of the U.S. housing sector this year. Improvement in residential construction is a key ingredient for the nonresidential market, wrote analysts, as new homes boost GDP and consumer spending.
In the past, however, a commercial real estate rebound has taken about eight months on average to materialize after a housing rebound, found the report.
And even so, the shift into the slower fall and winter season could mean that further upticks in housing data may be delayed until spring, wrote David Blitzer on the Standard & Poor’s Financial Services LLC housing blog HousingViews.