Commercial real estate development stalled until 2012, architects say

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With vacancies still on the rise in commercial properties in most parts of the U.S., construction of new buildings is expected to be rare this year and next, the American Institute of Architects said Wednesday.

Even with modest improvements in the economy, construction spending on hotels, office buildings, warehouses and malls is expected to decrease by more than 20% in 2010, followed by a marginal increase of about 3% in 2011, the architecture trade group said.

“There are a number of factors at play here that are contributing to one of the steepest construction downturns in generations,” said Kermit Baker, the AIA’s chief economist. “We have businesses nervous about expanding their facilities, a fragile financial sector, excess commercial space and general unease in the international economy.”

Real estate development should begin to turn around midway through next year, Baker said, with stores and hotels expected to see the strongest growth, along with new healthcare and amusement and recreation facilities.

Poor conditions prevail now because there is an oversupply of commercial buildings, weak demand for space, continuing declines in commercial property values and a strong reluctance to provide credit from real estate lenders, Baker said.

-- Roger Vincent