Fitch Ratings expects new nonresidential construction activity will remain positive for the remainder of this year and heading into 2014.
According to a report called “Measuring Wheel” from the New York-based agency, Fitch is projecting private nonresidential construction will grow 2% in 2013 and 5% in 2014 despite weak growth in the U.S. economy, lingering European economic problems and continued challenges in the commercial real estate capital markets.
Some institutions have begun to lend with more frequency, though the pace of originations is still far below the record levels experienced in 2007.
For example, the Federal Reserve Board’s latest quarterly senior loan officer opinion survey of bank lending practices indicated that approximately 21.9% of banks have eased standards somewhat for approving commercial real estate loans over the previous three months, while 2.7% tightened standards. Furthermore, this marks the 10th consecutive quarter where respondents have reported a net easing of standards for CRE loans following 20 straight quarters of net tightening.
“Institutions will continue to be selective in their lending activities in the near term, which will likely moderate growth in the commercial construction,” said Robert Rulla, a director at Fitch Ratings.
Commercial mortgages declined 1.5% during the first quarter compared to the previous year, according to a flow of funds report from the Federal Reserve.
Fitch is also forecasting public construction spending will stay flat through the end of this year as wet weather conditions hampered construction activity during the first half of 2013, leading to a 6.5% decline in overall work projects. However, assuming more normal weather patterns arise throughout the country, the agency is predicting a pick-up in construction activity for the second half of the year.
Additionally, Fitch is projecting a 3% growth in public construction activity for 2014. Last year’s passage of a new highway bill provides state and local governments with the certainty to plan projects.
“It will take some time to start larger, longer term projects so the benefits of the new highway bill will be more evident next year,” Rulla noted.
Also, Fitch said that with demand varying across construction end markets, financial performance will equally vary among building materials companies.
“Building materials companies with exposure to the public infrastructure segment will continue to be challenged with spending trends still weak,” Fitch stated in the report.
