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AIA: Retail, Office Construction Continue to Drop

Construction of U.S. office and retail buildings is poised to fall for the rest of this year and through 2009 on lower demand from tenants, stricter lending standards and rising building costs, the American Institute of Architects said.

Office-building construction likely will drop 3.7 percent this year and 12.3 percent in 2009, the Washington-based group said today in its semi-annual Consensus Construction Forecast. Construction of shopping centers and other retail buildings is forecast to fall 8.3 percent this year and 9.9 percent next year.

"The more pessimistic forecasts this round stem from the lack of growth in the overall economy, the ripple effect from the faltering housing market and the anxiety in the credit markets leading to a restriction in lending for all types of construction projects,'' Kermit Baker, the institute's chief economist, said in a statement.

The slowing U.S. economy is cutting demand for space from retail and office tenants, and the cost of construction materials has increased 37 percent since 2004, more than double the rise in the cost of consumer products and services, the American Institute of Architects said. Petroleum-based materials and commodities such as steel and concrete "have experienced sharp price increases in recent years,'' Baker said.

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