Non-residential construction leads boom
Strength in the sector may push back a building peak by one year, study says
The state's construction boom is not over yet, thanks to nonresidential contracts, according to the latest forecast by the University of Hawaii Economic Research Organization.
Residential construction has already peaked and slowed down, but the height of the nonresidential construction boom should happen some time between 2007 and 2008.
UHERO predicts the total construction spending will rise by 13.4 percent to $7.9 billion in 2007. Nonresidential permits are expected to remain almost 40 percent higher than in the previous five years.
Construction job levels are also expected to grow by three percent this year to 36,930, exceeding the previous record set in 1991.
With residential construction past its peak in the current cycle, continued strength in nonresidential construction appears to be providing an economic silver lining for the state.
In its latest forecast, released yesterday, the University of Hawaii Economic Research Organization expects the overall peak in construction to be pushed back one year because of the nonresidential sector.
UHERO said it has increased its predicted level of nonresidential permits upward by $400 million, saying it expects total construction spending to rise by 13.4 percent to $7.9 billion in 2007 largely due to the nonresidential boost.
"With home price appreciation over and affordability at recent lows, real residential construction will continue to recede gradually," wrote authors Carl S. Bonham and Paul Brewbaker. Brewbaker is also chief economist for Bank of Hawaii.
The group said the median price of a single-family home on Oahu is expected to decline by a little more than three percent this year to $610,900 before resuming slow growth again in 2009 toward $630,000.
Condominium median prices, on the other hand, are expected to rise this year by 3.5 percent to about $321,000, followed by a slight drop in 2008 to $317,000.
UHERO included forecasts for the median condominium resale price for the first time in its report.
While the homebuilding market peaked in 2005-2006, the UH group says it appears that nonresidential construction will peak some time between this year and next.
Although lower than the $1.78 billion record set in 2006, nonresidential permits are expected to remain almost 40 percent higher than in the previous five years.
Real government construction contracts are expected to continue in the range of $700 to $800 million annually during the forecast period.
Construction job levels are also expected to remain high, growing by three percent this year to 36,930, exceeding the previous record set in 1991. After that, the job count is expected to decline by about 1,000 in 2009.
Construction costs, however, will continue accelerating, rising 8.7 percent this year, and aren't expected to slow down until 2009, when the inflation rate should settle to a more moderate 4 percent.
Most of the nonresidential construction in recent years was driven by additions and alterations to existing properties, and is expected continue over the next few years on a wave of hotel renovations.
Major renovations are also planned at Honolulu International Airport, while the possibility of the new mass transit also promises to bring an economic boon.
UHERO did not factor in the proposed mass transit on Oahu in this report, mostly due to the uncertain start date, it plans to do so in its third quarter construction forecast.