The 2004 land development industry outlook is provided in two parts. The outlook provides a brief outlook for each industry segment with the land development industry. The first part, which is linked here and at the end of this article, details the outlook for the industry as a whole, discussing issues that will affect the entire market.


We have segmented the land development industry by project type into five major categories, then by numerous sub-segments in each category. The industry segments are Public Works and Transportation, Residential, Commercial/Recreational, Institutional, and Mixed Use.

Public Works/Transportation

Highways and Bridges
As eluded to earlier, the TEA-21 renewal measure before Congress has caused a great deal of uncertainty as to the expected investment by the federal government on transportation infrastructure. What the level of investment ends up to be – and when the measure ultimately becomes law – will help determine the overall outlook for transportation investment. We see this issue being prolonged enough to cause us to predict the transportation segment to show little growth in 2004. We are, however, “bullish” on transportation over the longer-term, as we believe the need for even stronger investment in this segment will become more critical and apparent to lawmakers with each passing year.

Airports
With Congress passing the bill to reauthorize the Aviation Investment and Reform Act for the 21st Century (AIR-21), this segment of the transportation sector appears to be ready to takeoff. Combine this with the continual efforts to meet the security issues established by the Department of Homeland Security and the infrastructure of the aviation market looks to be finally receiving a much needed upgrade.

Transit
Calls for public/mass transportation elements in urban revitalization projects will keep the railway and transit segment solidly afloat for the foreseeable future. We don’t see much growth here, however, so if you aren’t already well positioned in this market segment, you may do well to plan for expansion in other areas as established participants will likely keep this no-growth segment to themselves.

Water/Wastewater
Across the country, people are becoming more aware of water and wastewater issues - whether it's supply shortages in the West, combined sewer system overflows in the Northeast, or water rights disputes in the Southeast. Water and wastewater issues continue to become more prominent issues in many regions throughout the U.S. and infrastructure needs will drive investment in most regions.

According to a survey conducted by ZweigWhite, most of the largest municipal water/wastewater utilities in the United States plan to increase the overall dollar volume of new bid awards to design and construction companies through 2006.

Privatization of water sources and the continued segmentation of the wastewater component will likely cause an increase in the use of team approaches. With these and other factors in place, we expect a mild rebound in the water/wastewater market.

Solid Waste
In the solid waste market, three, distinct factors are poised to drive growth in 2004. First, some industry insiders believe that the relative lack of activity in landfill expansion during the past few years may drive a revival in that area. Second, waste-to-energy advocates are lobbying Congress to renew the tax credit for waste-to-energy facilities. And third, the volume of technology-driven waste is increasing at such a rapid pace that an opportunity may arise for firms positioned to take advantage of it. Should any one or any combination of these factors take hold, look for a solid year for solid waste.

Residential

Single-Family Housing
Low interest rates have allowed housing production to experience strong growth through the economic slowdown since 9/11. As we move into 2004, data from the U.S. Census Bureau indicates that the percentage increase of investment in the single-family housing industry is reducing, but we still characterize this segment as a hot market for 2004.

One of the forces that dictate this market to be “hot” is the fact that there remains a backlog of pent-up demand for new construction in most areas. With the population continually increasing, and low interest rates driving new housing demand to new heights, residential construction companies are riding a wave of business that is allowing them to demand – and receive – increased revenues and profits on their work.

We also expect continued strong growth in single-family remodeling and add-on investment, as consumer confidence and the low cost of capital further increase the incentive for individuals to appreciate the value of their real estate assets through improvements and additions.

Challenges in this segment lie with the availability of quality labor. The high demand for work is forcing businesses in many areas to decline new business, and others to lose their best workers, as they receive higher pay from competitors or venture out on their own.

Multi-Family Housing
Overall, we expect the multi-family housing market to begin to improve in 2004 over the tough year experienced in 2003. As low interest rates have made home ownership eminently affordable for so many, multi-family rental demand has correspondingly suffered. Low interest rates have also created incentive for developers to take advantage of the cheap cost of capital, and we expect them to continue new multi-family housing development, as they see that long-term demographic trends are moving in their favor.

The number of households 25 – 34 years old, considered the prime rental prospects, will rise by almost 600,000 between 2006 and 2010, so now is the best time for many multi-family developers to get themselves in position for the upcoming increase in demand. As a result, we expect multi-family housing to improve in many areas – especially in urban areas – as expected job growth helps fill vacancies, and increased demand ultimately helps increase rents.

Commercial/Recreational

Office
We expect office space development to begin to turn the corner in 2004 from its significant slowdown as a result of the recession of 2002, but there is a lot of vacant office space out there. As the economy expands this year, vacancies will continue to fill and the need for additional development and redevelopment will increase slightly from its 2003 levels.

Many sources, including those involved heavily in this area, believe that this segment of the market bottomed out in 2003 in regards to occupancy rates. Indications are that the only place to go is up, but that design and construction of new office facilities will not be a growth market in 2004.

Retail
Consumer confidence and spending is on the rise and is expected to be strong nationwide, and will drive investment. We see this as a hot industry segment for 2004. A recent survey conducted by Retail Traffic indicates that an impressive 61% of retail executives surveyed plan to open more stores than last year, while only 18% plan to open fewer stores in 2004. The trend is clearly toward retailers expanding into mixed-use sites or on their own freestanding sites, and away from shopping centers and/or strip malls.

Hotel/Motel
This market will bounce back from its days of devastation post-9/11 and show growth due to tourism and business travel rebounding. As a result, hotels and motels will fill up their rooms with greater frequency, and invest significantly to expand and refurbish their aging facilities and existing sites. However, it will take time to recover and new development will be very limited to those locations that are truly enjoying growth and have a need for more hotel/motel facilities.

Manufacturing/Industrial
We expect this segment to be relatively cold in 2004, as a lot of existing facilities remain vacant. Further, continued increases in production capabilities of existing facilities as a result of trimming fat during the economic slowdown will reduce the need for additional infrastructure to drive the additional production the economy will demand.

Religious Use
In the last few years, development in this segment has grown to the point that it can legitimately carry itself as a category worthy of analysis and potential focus. Religious participation has grown significantly over the last decade, and religious use development reached a new high in 2003. We expect religious use development to reach over $9 billion in 2004, with a very high percentage of this on new development.

In fact, in a review of newspapers across the country, the number of new worship spaces being constructed is not just a unique local phenomenon, but rather a widespread trend.

Golf Course/Recreation
The consistent decline this segment has experienced over the last four years or so will begin to turn around in 2004, as planned construction will begin to occur. Sports complexes and health clubs show the most promise. Many developments were placed on hold until an economic recovery seemed imminent – and to many, now is the time to renew these efforts.

Mixed Use Development
The popularity of mixed-use development has certainly taken hold. Scarce land for development, combined with an abundance of quality of life considerations, has increased the demand for intensifying the use of available land. The growing proliferation of mixed use developments are the result, and we see this segment gaining momentum in 2004.

We expect to see more neighborhood community centers in the near future. While many of these developments are being created from scratch, there also seems to be a growing trend among governments towards redevelopment of existing sites and buildings. Making high-rise buildings in urban environments into mixed-use developments has found favor in part because developers have been confronted with the no-growth and sustainability issues.

Institutional

Education
Two trends drive our analysis for the education market: the baby boomers’ grandkids are beginning to reach the post-secondary education level; and, private education is increasing in popularity.

Following the population age demographics, secondary schools showed the greatest growth in 2003.

Investment growth is destined to move toward the post-secondary level in 2004. As the population bubble begins to reach the post-secondary level in 2004, we expect universities and community colleges to increase planning and building activity to accommodate the future influx of students. However, as detailed more in the government institution section, publicly funded institutions will likely lag behind their private counterparts by a few years.

While public school investment is expected to be relatively flat, private school investment will be strong. We project a 10% investment increase in 2004 to about $63 billion from US Census Bureau estimates of about $58 billion in 2003. However, private school investment represents only about 20% of the educational market segment activity, so this strong growth is not enough to carry the entire segment.

Health Care
Many budgetary pressures on health care companies, hospitals, and nursing homes are creating a level of uncertainty in the industry. This will not change significantly, if at all, until after the 2004 presidential elections. However, some regions throughout the country may see a spike in the planning and design of additions and/or creation of new facilities.

With the passage and signing of the latest prescription drug care, Medicare and Medicaid reimbursement levels are being raised in some locations that have been woefully low for a number of years. This may result in the freeing of some capital for land development in these areas.

Senior Housing/Assisted Living
It should be no surprise that interest in the development of senior housing is on the rise. With an aging population and the negative stigma attached to “nursing homes,” the inclusion of various types of housing that is geared toward senior is being viewed as a popular option worth considering.

The American Seniors Housing Association (ASHA) classifies six distinct types of senior housing: senior apartments, independent living communities without assisted living, independent living communities with assisted living, free-standing assisted living residences, assisted living residences with skilled nursing, Alzheimer’s or specialty care units, and continuing care retirement communities (CCRCs).
According to a mid-2003 report released by ASHA in collaboration with the National Investment Center for the Seniors Housing & Care Industries (NIC), seniors housing under construction increased in 2003 for the first time since 1999.  

“Although construction levels of seniors housing have increased appreciably between 2002 and 2003, it is important to note that construction volume is modest compared to the peak year, 1999,” said David S. Schless, ASHA President in a press release.  

Helping to justify this emerging industry is the fact that senior housing can be incorporated into two new popular types of land development – mixed-use and re-development/re-use. Perhaps even more important to investors and/or developers considering this niche is the fact that the median occupancy rate for surveyed communities was 93.5% based upon data for the latest year available (2001).

Government Institutions
Correctional facilities continue to represent a steady market. While activity has stabilized, national and state policies will likely determine the growth of these institutions. One of the key issues that continues be a factor is the increasing illegal immigrant population entering into the United States. While the situation is more severe in states along the U.S. border, the situation is also affecting the heartland. This is a situation that will soon reach critical mass, and with public dollars in shorter supply, an increase in development of these facilities is unlikely.

Likewise, while education growth at the primary and secondary levels grows, two-year and four-year state-sponsored institutions of higher education are also being caught in the midst of many budget battles. Double-digit tuition increases have become the norm, but will not likely be utilized for capital improvements. However, if and when the economy does hit full stride, philanthropic contributions from alumni could spur growth. Don’t expect any significant changes in 2004 as it will take time to create a more receptive attitude.

On the flip side, military and department of defense work will see a continued upswing in 2004, especially for organizations that are able to secure work on the design and land development work in Afghanistan and Iraq. Much of the domestic work has already been appropriated so any funds being diverted to the war will not likely have an affect in military contracts on the domestic front in 2004. Be aware, though, that domestic appropriations for base development and construction are likely to take a significant budget hit that will impact 2005 and perhaps all the way through 2008.

Energy
The impending ruling regarding the Clear Skies Initiative, which means more uncertainty for utilities, may prolong upgrades to aging power plants, thus continuing the poor climate and uncertainty for power plant operators and investors. That is more bad news for a sector that has prevented new base-load power plant design and construction for decades because of uncertainties.


Summary
When breaking down the land development industry into segments, perhaps the easiest way to characterize the likelihood of successful growth of organizations within the industry is to determine the percentage of privately- or publicly funded projects that they undertake in a year. While this will undoubtedly be one factor, it is not the only factor.

The priority level placed upon publicly funded projects will help determine the amount of activity a segment receives. For instance military bases and other department of defense work that have already been appropriated will continue to move forward. However, transportation and other infrastructure funding is being sacrificed in 2004.

In case you do not read part one of our industry outlook, we need to stress that many factors within your organization like management, implementation of technology, and your organizational culture and structure, as well as outside influences related to the overall economy, including employment and interest rates, will play a significant role as you and your organization moves into the future on a positive note or not. SLDT