North Carolina’s ’09 Outlook – 10% Downturn Expected

By Scott Judy

Of the four states in Southeast Construction’s coverage area, McGraw-Hill Construction is the most pessimistic about North Carolina’s prospects for 2009. The company is projecting a 10% overall decline for the Tar Heel State, for a total construction value of about $18 billion. That would compare to the state’s 2008 estimate of nearly $20.1 billion.

The state’s nonresidential market – which is forecast to decline by just 1% overall and tally about $6.3 billion in new projects – will see some ups and downs, with the two major subcategories varying significantly. The commercial and industrial category, for example, will likely decline by 11% in 2009, according to McGraw-Hill, and total about $2.5 billion. That would compare to 2008’s $2.8 billion for this category, but would be well down from the 2007 total of nearly $3.7 billion.

Within this segment, McGraw-Hill Construction senior economist Jennifer Coskren is especially worried about store and retail construction.

“Despite an incredibly difficult economic environment, store contract value in (North Carolina) will grow 9% in 2008, unsustainable given the dips in consumer spending,” she explains. “We’re looking at a (roughly) 14% drop in store construction for North Carolina in 2009, though the declines could cut much deeper given (the turmoil) in the state’s all-important financial services sector.”

In the other major nonresidential sector, institutional building construction, the state should see a 6% improvement over 2008. If that occurs, North Carolina would experience nearly $3.9 billion in new project starts, up from last year’s $3.6 billion total. Here, Coskren says McGraw-Hill is monitoring a pair of noteworthy health-care projects that may start soon at Duke University Hospital – a $596 million hospital expansion, and a $265 million cancer clinic.

The reason for McGraw-Hill Construction’s overall negative prediction for the state can be found in the residential sector. The company is forecasting a 12% decline here – the largest percentage decline for this sector of any of the four states. That would result in about $8.5 billion in new project starts during the coming year, down from last year’s nearly $9.7 billion figure. (Additionally, the projected total for 2009, $8.5 billion, equals roughly half of the $17.1 billion in new projects that this market delivered in 2006.)

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Unfortunately, nonbuilding construction won’t offset any of the declines of the other sectors. Instead, McGraw-Hill Construction is forecasting a 19% overall downturn in nonbuilding work, for a total of about $3.2 billion. While that is considerably lower than last year’s nearly $4 billion total, the 2009 projection still would be the second highest dollar volume in the past six years, according to McGraw-Hill Construction’s figures.

Notably, the company expects the biggest portion of the nonbuilding sector, public works, to improve 3% and total about $2.9 billion in new contracts. Electric utilities work is expected to decrease by 76%, however, and tally about $270 million for the coming year, well down from 2008’s $1.1 billion total.