across.pond@doorindustryjournal.co.uk


GARAGE DOOR ACTIVITY INDEX Construction & The GDAI Continue to Waffle


Toward the end of 2010 there were signals that construction activity might be gathering momentum for resurgence in 2011. Evidently, those signals were premature or simply aberrations as selected projects were accelerated to completion. Prevailing forecasts now indicate that total non-residential construction is likely to decline an additional 2.0 to 3.2 percent over 2010, and housing starts will continue to hover in the range of 600,000 annually, 72.0 percent below the 2005 peak.


The Garage Door Activity Index has once again moved slightly downward, following the same variable pattern of the last five quarters. This condition is reflected in the disparity of construction demand from market to market. For example, while vacancy rates have fallen with some new construction apparent in theWashington D.C. Metropolitan Statistical Area (MSA), there are more than 22 million square feet of vacant office space in the Chicago MSA and warehouse vacancies in the New York MSA remain at an all-time high.


For door dealers and manufacturers alike, frustration is widespread as the construction sector continues to wallow in uncertainty while the U.S. Economy as a whole anticipates continued growth throughout 2011 following a strong fourth quarter in 2010. Both the manufacturing and retail sales grew by 6.0%or more across the last six months, and the tax package passed in late 2010 and the continuing influence of the Recovery & Reinvestment Act of 2009 have combined to fuel optimism for those sectors. Yet, construction activity, which historically has led the economy out of recessionary periods, remains stagnated.


TheWicked Trio of Vacancy, Unemployment & Falling Prices


There are many impediments to reviving new construction activity, including restrictive lending policies and limited access to risk capital.


However the greatest deterrents are the intertwined problems of a) an excessive vacancy rate - for both residential and commercial properties, b) high unemployment, and c) falling home prices.


As vacancies increase, selling and rental prices naturally decline. According to Yale economist Robert Shiller, “Lower home prices don't help jobs, because they constrain consumer spending.” The Standard & Poor/Case-Shiller Home Price Index announced in late January that the median prices of houses in the U.S. continued to deteriorate, falling for the fifth consecutive month.1


The Case-Shiller data


indicated that 19 of 20 Metropolitan Statistical Areas tracked in its 20-City Composite Index declined in November 2010, with San Diego up just 0.1%. Thirteen of the MSAs were down by 1.0%or more, with Detroit posting the largest decline of 2.7%. As of November 2010, Las Vegas was 57.2% below its peak median in August 2006; Phoenix off 53.9% from June 2006 and Miami was 48.8%down from its December 2006 peak.2


The various services that track commercial real estate activities note that office space vacancy ranges from 16.0% to 26.0%, and as much as 30%in Los Angeles, according to NAI Global.3


Vacant commercial warehouse space remains


excessive in most areas, and even in otherwise strong markets such as Dallas, the industrial vacancy rate remains


44 THE door industry journal spring 2011 above 12.5 percent.4


One of the more fascinating early reports following the 2010 Census indicates that over 11.0%of all U.S. housing units are vacant. That works out to nearly 13 million houses. Of course, not all are habitable, and a significant portion may be for seasonal use, but the fact remains, there is a significant barrier to any quick resumption of widespread new residential building activity.


Ironically, much of the emphasis on productivity that has accelerated corporate profits has also left a trail of both excess square footage and unemployed people, and there is nothing on the immediate horizon that will alleviate either situation. The only bright spot for the garage door industry is that the apparent tenacity of both businesses and homeowners to not seek new space energizes replacement and retrofit demand.


Selling Improvements & Upgrades


Nearly any building benefits from improved garage doors and operators. Indeed, few items are as conspicuous as a garage door - on either a house or a commercial building, and the industry has designed and developed a broad array of product improvements across the last decade. Those dealers that have adapted to this era of protracted new construction have done so by capitalizing on the opportunity to sell upgraded doors and operators to homeowners and commercial building occupants.


The operative word here is ‘sell’. Selling includes well- designed showrooms, effective use of the new electronic media, attractive door plus operator packages and training all employees how to present door benefits and features. To some, this may sound trite or superficial, but it is the retrofit and maintenance market that will support the majority of building products sales for perhaps the next two to three years while jobs and renewed demand for new construction slowly evolve.


The demand for retrofit residential garage doors will grow by between 5.5%and 7.0%in 2011. The demand for commercial doors growing out of replacement or renovation requirements will grow by just under 5.0 percent.While not ‘blockbuster’ increases, retrofit is the one area that affords some growth potential, but it takes marketing effort to capitalize on the opportunity.


Article written by John Zoller and David Bowen, from Zoller Consulting, Inc. 001.330.262.8500 John@zollerconsultinginc.com .


Reprinted with the kind permission of International Door & Operator Industry.


1 Standard & Poor, Case-Shiller Home Price Index, January 25, 2011 2 Ibid. 3 PR Newswire, January 4, 2011 4 Ibid.


Also online at: www.doorindustryjournal.co.uk


across the pond


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