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U.S. Commercial Building Construction to Grow

Despite a slow start, the next five years will be a period of robust revenue growth for commercial construction companies, mainly because of the economic recovery, according to a market research report from IBISWorld. Few industries suffered more during the recession than commercial building construction. The collapse of the housing market and its subsequent strain on the financial sector set the stage for a stifled commercial construction market. Reduced corporate profit, high unemployment and low consumer spending contributed to the industry’s decline as businesses stopped growing or even downsized, which halted demand for new office space and warehouse construction.

High unemployment and low consumer spending also crippled the retail and hospitality sectors, according to Andrea Alegria, IBISWorld industry analyst. As a result, industry revenue is expected to fall at an average annual rate of 13.4% to $105.9 billion over the five years to 2012.

Commercial construction typically lags behind the overall economy by one to two years, due in part to the length of construction contracts and industry backlog. Industry revenue began to slow in 2008, and then plummeted 29.7% and 30.3% in 2009 and 2010, respectively. During those years, most contractors’ backlogs diminished to unprecedented levels, despite the influx of stimulus dollars, causing profit to shrink. As the market for construction services declined, firms resorted to bidding on projects for a loss, just to keep their crews busy. In 2009 and 2010, profit margins dropped to less than 1.0% from a peak of 5.0% in 2007. Margins are expected to remain low in 2012, at 1.8%, showing a modest improvement as economic recovery stimulates demand for new commercial construction and as the prices of services gradually increase.

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