Chicago Market
Sobering Thoughts
by Craig Barner
Chicago-area construction firms reveled during the boom of
the late 1990s and early 2000s, regularly knocking back annual
increases in new building.
The sobering up has begun.
Data for the Chicago metropolitan area reveals an industry
in the doldrums.
The dollar value for area construction starts in the first
half of 2003 tumbled 19 percent to $6.7 billion, according
to Robert Murray, vice president of economic affairs for McGraw-Hill
Construction.
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"It's a slipping back from the increases that were present
in 2001 and 2002," he said.
"It is a response to the slow economy we're had over
the past two years."
This follows 2002, when the value of construction starts in
the first half climbed 26 percent, to $8.3 billion. The increase
in that half-year is likely attributable to the beginning
of the $606 million Soldier Field reconstruction project in
January.
No similarly mammoth project started in the first half of
2003, and each of the major market sectors suffered declines
in the value of construction starts.
Data show public works fell 38 percent, to $1.3 billion; nonbuilding
construction 37 percent, also to $1.3 billion; institutional
30 percent, to $1.1 billion; and commercial and manufacturing
building 19 percent to $986 million.
Residential held steady, suffering only a 1 percent decline,
to $3.3 billion.
The Chicago-area construction market reflects the overall
stagnant state economy, data from the University of Illinois
at Urbana-Champaign show.
The monthly Flash Index of Economic Growth - a weighted average
of economic activity in Illinois based on sales tax receipts,
individual income tax receipts and corporate earnings - remains
below 100, the line between economic growth and decline.
A trend, however slight, continued in July, when the reading
was 96.7, an increase of more than a point from the 95.4 reading
the previous year.
"Corporate earnings are not great, but they are clearly
better than they were a year ago," said J. Fred Giertz,
professor of economics and director of the Institute of Government
and Public Affairs at the University of Illinois.
In the middle of the limp economy, construction firms are
striving to secure fewer jobs. And, the situation is having
an impact on executives and professional trades people alike.
Michael O'Neill, president of the Chicago and Cook County
Building and Construction Trades Council, projects that the
organization's 100,000 members in 23 crafts will work 20 percent
fewer hours this year compared with last.
"Some of the major markets - mostly private development
downtown, like hotels, office and condominiums - are nearing
capacity," he said.
Something to Cheer About
Some important sectors are running counter to the trend of
declines.
The value of office starts in the Chicago area in the first
half, for example, rose 18 percent to $310 million, data show.
Driving the increase was the start of the 111 S. Wacker Drive
project, the Chicago Transit Authority headquarters on Lake
Street and a couple suburban projects.
And bridges showed a whopping 156 percent increase, to $281
million. The increase reflects the start of a $52 million project
to replace 20 bridges and retaining walls in Chicago and the
reconstruction of the 100th Street viaduct at the Calumet River,
also in the city.
The beginning this spring of a $300 million renovation of the
terminal facades at O'Hare International Airport was also an
important start.
Activity in the Chicago's high-rise residential market remains
hot. The downtown area bounded by Cermak Road and North Avenue
is in one of the strongest periods of condominium and apartment
deliveries, though most projects started before the beginning
of 2003.
Deliveries are projected to reach 6,370 units in 2003, according
to Gail Lissner, president of Chicago-based Appraisal Research
Counselors Ltd., a research firm.
The number includes 4,441 condominiums, 1,325 apartments, 292
townhouses and 1,274 adaptive reuse units.
In 2002, 4,602 units were delivered, she added.
But the overall movement in construction is downward, as the
Chicago area is projected to end the year with a 13 percent
decline in construction spending, Murray said.
"What you're seeing is a dampening of the institutional
market and also public works, excluding highways and bridges,
given the tighter fiscal condition at the state and local level,"
he added.
Chicago Area Construction Starts
(First half totals each year; in millions)
The Chicago Area experienced a significant drop in the value
of construction starts in the first half of 2003. A 19 percent
decline was recorded.
2000 2001 2002 2003 % Ch., 03/02
Total Commercial $1,167 $940 $1,044 $919 -12%
Total Institutional $1,242 $1,469 $1,509 $1,056 -30%
Total Residential $2,475 $2,990 $3,373 $3,324 -1%
Total Nonbuilding $1,105 $1,059 $2,150 $1,349 -37%
Total Construction $6,058 6,543 $8,254 $6,715 -19%
Source: McGraw-Hill Construction Dodge
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