Commercial Boom Softens Housing Bust

Strong Non-Residential Demand Keeps Local Builders Busy

Builders, suppliers and workers that can do commercial construction remain in demand despite a slump in housing. (By Carol Guzy -- The Washington Post)

To understand why the housing slump hasn't dragged the economy into a recession, it helps to visit the Smoketown Plaza in Woodbridge, where the thumping of hammers signals the healthy pulse of a building boom that's still going strong.

Just two miles off Interstate 95, hard-hatted construction workers clamber up dusty ladders and scaffolding, hanging wallboard, laying bricks and drilling metal frames in a buzz of activity aimed at completing a new Arby's drive-through restaurant in time to open by mid-December.

Inspecting the progress as she crosses the bare concrete floor, stepping around the pipes and exposed wires and pointing with pleasure to the gleaming metal frame where the menu board will hang, Christy Gilligan envisions how the place will look when hungry commuters rush in after work for a quick bite, entering through a glass foyer with a two-story cathedral ceiling into a dining room seating 84.

"I see opportunity," said Gilligan, vice president of development with ACW Corp., of Wilmington, Del., a family-owned Arby's franchiser building the restaurant, its fourth in Prince William County.

Many other executives are making similar calculations across the Washington area and throughout the country, boosting non-residential construction enough over the past year to more than offset the decline in home construction. That boom is helping to cushion the impact of the housing slump on the economy.

The nation's harshest housing downturn in 15 years has unquestionably inflicted pain on many homeowners, builders and their suppliers. The plunge in new home construction was severe enough alone to slice a full percentage point off the nation's economic growth in the July-through-September period, depressing the increase in total economic output to a sluggish 1.6 percent annual rate. And the housing market hasn't hit bottom, according to the figures since then.

But the rest of the economy outside of housing remains largely healthy. With unemployment low, wages and stock prices rising and fuel prices ebbing, consumers continue to boost their spending. And businesses are increasing their capital investment, spending more on buildings, equipment and providing new fuel for the economic expansion.

Builders of non-residential projects say they are simply playing catch-up. So many new neighborhoods filled up during the housing boom that they're still building the stores, offices, restaurants, bank branches, hotels and hospitals needed to serve the influx of residents.

In Prince William County, for example, the population surged by 23 percent in the past five years, during the peak of the home-building boom, to 374,678 people. Now, many residents complain they have to drive too far, often to Fairfax County, for basic business services.

The companies that provide those services "don't build until they see the rooftops" over new customers, said Bill Fairchild, president of R.W. Murray Co., a construction contractor in Manassas that's overseeing the Arby's on Minnieville Road and a dozen other non-residential projects in Northern Virginia. "People have got to get groceries. They've got to get their hair cut. They need to go to the cleaners."

Nationwide, building contractors are expanding factories to crank out more exports to meet rising demand from overseas. Others are modernizing refineries to squeeze more fuel out of oil. And the recent volatility in world oil prices has spurred a wave of investment in alternative fuel plants, said Kenneth Simonson, chief economist of the Associated General Contractors of America. Scores of ethanol plants are under construction or being planned across the country.

The money spent on private non-residential construction nationally rose a sizzling 19.2 percent over the 12 months that ended in September, according to Census data. In addition, state and local governments are building roads, schools and other public buildings. Public construction rose a robust 11.6 percent in the year ended in September.