1. 2008 Outlook for U.S. Construction Activity Midyear Update
ENR-CURT Construction Business Forum
St. Charles, MO – June 11, 2008
2008 Outlook for U.S. Construction Activity Midyear Update
Robert Murray
Vice President, Economic Affairs
McGraw-Hill Construction

2. U.S. Construction Market Indicators
Total construction fell in 2007 – first decline in current dollars since 1991.

3. Major U.S. Construction Sectors (Starts)
Single Family Housing down sharply; Commercial Bldg. turning;
Institutional Bldg. , Public Works still have some upward potential.

4. U.S. Macroeconomic Picture
The economy has slowed – and is close to recession.

5. U.S. Macroeconomic Picture
The pressure on prices has picked up.

6. U.S. Macroeconomic Picture
Both short-term and long-term rates have moved down.
Also, Federal Reserve took
aggressive steps in March to deal
with latest stage of financial crisis.
Stimulus Package includes:.
Tax rebates
Incentives for equipment purchases
Steps to increase the funds
available for mortgage lending.
Aside from monetary policy,
a $168 billion stimulus package
was enacted on February 13.
Pattern of GDP Annual Growth
% % +2.5% (?)

7. U.S. Macroeconomic Picture
Tighter lending standards are a major constraint for 2008.
More instances of tight credit conditions
affecting large projects, such as
Cosmopolitan Resort in Las Vegas
Atlantic Yards in Brooklyn
Other New York City projects
Seattle development (Clise property)

8. U.S. Macroeconomic Picture
Federal budget restraint – ok for ’08, tougher climate in 2009.
Supplemental Spending Bill for 2007
Additional funding for Corps of Engineers, base realignments, homeland security,
rail and transit systems.
Federal Spending for Fiscal 2008
Federal-aid highway program, up 5%
Mass transit, up 5%
Airport Improve. Grants, flat
Corps of Engineers, down 2%
EPA Water Infrastructure down 7%
-- Clean Water SRF’s, down 35%
GSA Construction, down 33%
GSA renovations, down 16%
DOD base realignment, up 29%
Renewed focus on infrastructure following
I-35 W bridge collapse in Minneapolis
Fiscal 2009 – Bush Admin. Proposals
Federal-aid highway program, down 4%
Mass transit, up 7%
Airport Improve. Grants, down 22%
Corps of Engineers, down 18%
EPA Water Infrastructure down 12%
-- Clean Water SRF’s, down 21%
DOD base realignment, up 26%

9. U.S. Macroeconomic Picture
State fiscal health now weakening.
Current Status
New York State – as example,
funding boost still coming from
$2.9 bil. bond measure passed in 2005.
Also – ambitious capital programs of
NY-NJ Port Authority, MTA
But – budget picture has changed
21 States with Projected Budget Gaps
for Fiscal Year 2009, including:
Shortfall
California $16.0 bil.
New York bil.
New Jersey bil.
Florida bil.
Ohio bil.
November 2006 Elections
California -- voters approved
Prop. 1B -- $19.9 bil. for transportation,
also $10.4 bil. for school facilities
November 2007 Elections
Texas – school const. measures passed.
Washington State – voters rejected
Proposition 1, which would have used
tax hikes to fund transportation projects.

10. U.S. Macroeconomic Picture
Materials prices in 2007 had varied pattern. Shift from
Is there more capacity
coming on line? Yes.
Is slower U.S. economy
leading to less pressure on
commodity prices?
In some cases, yes.
But, in 2008 investors
are pushing commodity
prices upward.

11. U.S. Macroeconomic Picture
Other building materials -- renewed concern over steel prices.

12. U.S. Macroeconomic Picture

13. U.S. Single Family Housing
Construction fell sharply in 2006 and 2007 after 2005 peak.
Single Family Housing Starts
million units +5%
million units -18%
million units -30%

14. U.S. Single Family Housing
Major negatives – falling prices, high inventories, tighter lending.
Bank regulators have issued
guidelines to banks for
unconventional mortgages.
Subprime lending turmoil is now
affecting more traditional mortgage
lending. (Fed. Res. Jan.’08 survey)
Steps taken to improve funds available
for mortgages -- will they help?
Single Family Housing Starts
million units -31%

15. U.S. Multifamily Housing
Construction relatively stable in 2006, weakened in
Comprised of both apartments
and condominiums.
Helped by push for
downtown redevelopment. Demographics supportive, especially from empty-nesters.
Mid-decade strength has
come from condominium
development.
Was attractive investment
target, less so now –
due to mounting concern
about over-building of condos
and diminished credit availability.
Multifamily Housing
,000 units -3%
,000 units -14%
,000 units -22%

16. U.S. Multifamily Housing
Major metropolitan areas
Multifamily Housing
Top 10 Metros -- ranked by new dwelling units
Year 2006, %ch 06/05
1. New York
2. Miami %
3. Chicago %
4. Los Angeles %
5. Dallas-Ft.Worth +26%
6. Washington DC -21%
7. Atlanta %
8. Orlando FL %
9. Seattle %
10. Houston %
12. Las Vegas %
Year 2007, %ch 07/06
1. New York %
2. Chicago %
3. Washington DC +3%
4. Atlanta %
5. Seattle %
6. Houston %
7. Miami %
8. Los Angeles %
9. Orlando Fl %
10. Phoenix %
12. Las Vegas %

17. U.S. Commercial Bldgs. -- Stores
Construction in 2006 and 2007 still at very high level.
Derived demand from housing
market – definitely going up;
but is it also true going down?
Substantial building
from five major players:
Wal-Mart,
Home Depot, Lowe’s
Target, Kohl’s
Impact of slowing retail sales;
still, competitive retail landscape.
Wal-Mart announcement on plans to scale back expansion.
Move to smaller venues e.g., “lifestyle centers”.
Store Construction
msf -1%
msf +1%
msf -19%
(msf = million of sq. ft.)

18. U.S. Commercial Bldgs.-- Hotels
Construction soared in 2006, more growth in 2007, down in 2008.
Industry financials had strengthened:
Occupancies in 2006 at 63.3%,
vs. 63.1% in 2005.
Revpar in 2006 up 7.5%.
almost as strong as 8.5% in 2005.
(Smith Travel Research)
2007 Revpar up 5.7%.
In 2005:
hotel/casino projects, and
convention center- related hotels.
In 2006 and 2007:
broader expansion,
more Las Vegas projects,
convention center hotels,
“condo” hotels
Shorter “upcycle” this time?
Hotels
msf +67%
msf %
msf %

19. U.S. Commercial Bldgs. -- Offices
Construction upturn has been measured this time …
Recovery re-established in 2006:
activity stalled in 2005 as projects reassessed due to higher costs.
Market fundamentals still
relatively healthy, but now turning.
office employment
vacancy rates –
suburban in 2008 Q1 up to 14.9%;
downtown in 2008 Q1 eased to 10.2%
In 2006 and 2007: several major
high-rise projects reached
groundbreaking, including:
Goldman Sachs headquarters
Freedom Tower
11 Times Square
Early 2008: more NYC WTC –
Towers 2, 3, 4
Office construction
msf %
msf %
msf %

20. U.S. Commercial Bldgs. -- Offices
Office Building Factors
No extensive overbuilding –
Means downturn likely to be
Measured, not precipitous.

21. U.S. Institutional -- Educational Bldgs.
School construction still strong, but losing some momentum.
Primary, Jr. Highs % %
High Schools % %
Colleges/Univ % %
Libraries %
Laboratories % %
Museums % %
Comm. Colleges % %
Vocational Schools +37% %
Educational Buildings
msf +5%
msf -5%
msf -1%
Numerous states in recent years
have passed school construction
bond measures, especially
California.
Major universities have increased
capital spending plans.

22. U.S. Institutional – Educational Bldgs.
College/University construction remains on upward track.
Colleges, Univ.,Comm.Col.
msf %
msf %
msf %
Dormitories
msf %
msf +8%
msf %

23. Educational Buildings Top 10 States -- ranked by sq. ft. of new starts
U.S. Institutional -- Educational Bldgs.
Educational Buildings
Top 10 States -- ranked by sq. ft. of new starts
Year 2006, %ch 06/05
1. Texas %
2. Florida %
3. California %
4. Ohio %
5. Pennsylvania +61%
6. Georgia %
7. North Carolina +8%
8. Illinois %
9. Virginia %
10. Arizona %
Year 2007, %ch 07/06
1. Texas %
2. Florida %
3. Georgia %
4. California %
5. Pennsylvania -24%
6. Ohio %
7. North Carolina -8%
8. New York %
9. Illinois %
10. Arizona %

24. U.S. Institutional -- Healthcare Buildings
Healthcare facilities reached new high in 2006, now settling back.
Clinics/
Nursing Homes %
Hospitals % %
Ongoing need to replace
aging facilities
Hospital vs. outpatient clinic dynamic
Closer scrutiny of finances
Growth of the elderly
population
Healthcare Facilities
msf +1%
msf -8%
msf -5%

25. U.S. Institutional Buildings
Public Buildings had strong 2007; Amusement category weakening again.
2007
Detention Facilities %
Armories/Military %
Courthouses %
Police/Fire Stations %
Post Offices %
Total Public %
Total Public %
Total Public %
2007
Convention Centers %
Sports Arenas %
Theaters %
Other (inc. theme parks) %
Total Amuse. & Rec %
Total Amuse. & Rec %
Total Amuse. & Rec %

26. U.S. Manufacturing Buildings
Plant construction in sq. ft. lackluster, yet growth in dollar terms.
Manufacturing Buildings
msf %
msf
msf %
Manufacturing Buildings
$13.5 bil %
$16.8 bil %
$18.0 bil %
Surge of ethanol plants in

27. U.S. Public Works -- Highways & Bridges
Highways and bridges advanced in ’06 and ‘07, with more growth ahead.
SAFETEA-LU, with 2004 added,
up 38% compared to TEA-21.
Passage of SAFETEA-LU reduced uncertainty regarding long-term funding.
Key concerns – higher costs
reduced benefits of more funds;
FHA price index up 21% in 2006.
Renewed focus on infrastructure
following I-35W bridge collapse in
Minneapolis.
Fiscal 2008 appropriations –
federal-aid highway program up 5%,
including added funding for bridge
maintenance.
Concern for 2009 –
Highway Trust Fund shortfall.
Highways, Bridges
$50.9 billion +15%
$53.4 billion %
$56.3 billion %

28. U.S. Public Works -- Environmental
Environmental public works growing more slowly after recent surge.
Fiscal 2008 –
Bush proposals call for funding cuts; to be modified by Congress.
Water Resources Bill –
passed over Bush veto
Various “gap” analyses point
to aging infrastructure, and how
current funding is coming up short.
Environmental Public Works
$33.4 billion +6%
$36.8 billion +10%
$38.4 billion +4%

29. U.S. Electric Utilities
New electric utility starts holding close to level reached in 2006.
Glut of power generation absorbed
Projects started in
have become operational
Capacity utilization dropped
from 95% in 2000 down to 85%
in By summer of 2006
cap. utilization back up to 91%.
Energy Bill -- tax incentives for
oil and gas production, electric
utilities, transmission lines, etc.
Electric Utilities
2006 $16.2 billion +106%
2007 $13.6 billion %
$15.6 billion +15%

30. U.S. Total Construction Starts for 2008
Billions of Dollars
Total Construction % +13% +3% -9% %
Single Family Housing % +12% -14% -26% -28%
Multifamily Housing % +36% +2% -11% -20%
Commercial Bldgs
+14% +7% +28% +6% -8%
Institutional Bldgs
-1% +12% +11% +4% %
Manufacturing Bldgs
+17% +26% +33% +25% +7%
Public Works
+6% +9% +17% +7% %
Electric Utilities
-18% +8% +106% -16% %