-By Katie Weeks

Despite economic ups and downs and year-end slowdowns across a number of markets, 2007 turned out to be a relatively good year for corporate design and construction, with office space remaining in high demand across the globe. In fact, despite the ever-darkening picture in the U.S. housing market, spending on non-residential construction increased by nearly 20 percent over the year. The future, however, is not so bright.

Grubb & Ellis predicts a 40 to 50 percent probability of a recession starting in 2008, and while it's arguable as to whether it already has begun, the national economic slowdown is having a definite impact on all design market sectors. The Architecture Billings Index (ABI), a leading economic indicator of construction activity that is produced by the AIA Economics Market Research Group, fell to 39.7 in March 2008, its lowest level since October 2001. (Any score above 50 indicates an increase in billings.) The ABI dates back to 1995, so the 1991–1992 recession is not included in its records, but the 11-point fall that occurred during the first quarter of 2008 does not bode well. "Aside from historically low project demand, all regions are showing very poor business conditions. This is not likely to reverse itself anytime soon," AIA chief economist Kermit Baker, Ph.D., Hon. AIA, comments on the findings.

Job growth, a driver of commercial office construction, clearly is slowing. According to the AIA's Consensus Construction Forecast, less than 40 percent of the payroll positions added in 2007 were done so during the second half of the year. And in 2008, Grubb & Ellis predicts payroll growth to average less than 100,000 a month, which would in turn absorb 36 million sq. ft. of space, nearly half of that absorbed in 2007.

Those firms looking for foreign investments in the United States to level out the playing field should proceed with caution. "The extraordinary cocktail of economic and fiscal forces, which have made real estate the investment medium of choice around much of the world this decade, has been watered down by a global crisis of confidence in the credit market," report Grubb & Ellis. The AIA's Consensus Forecast Panel not only projects a meek 1.7 percent growth for office construction activity in 2008, but it also does not expect improvement in 2009. In fact, the panel is predicting office construction to decrease by 3.7 percent next year.

Those frustrated by rising construction and material costs should take heart as the economic downturn is predicted to be mild. In the meantime, markets expected to hold up against the weak economy are Seattle, Los Angeles County and the Bay Area in California, the Mountain region including Denver and Salt Lake City, Texas, the Carolinas, the District of Columbia, Manhattan, and Boston. In addition, Phoenix and Las Vegas, South Florida, Atlanta, and Chicago may see growth even as their residential areas struggle. And overseas, market growth looks stronger, with large increases in the construction pipeline from 2007 continuing over into 2008 in Dubai, Abu Dhabi, Bucharest, Kiev, and Vilnius.