Some signs of recovery for fenestration

Katy Devlin
February 16, 2009
COMMERCIAL, RETAIL, FABRICATION : MEETINGS AND EVENTS

The U.S. economy went into recession in December 2007, after six years of growth, said  Michael E. Collins, a senior associate with Jordan, Knauff & Co., an investment banking firm in Chicago. While glass and fenestration companies face challenges and belt tightening in the tougher times, the recession isn’t all bad news for the industry, Collins said. “The industry is a lot leaner, a lot meaner, and a lot more efficient,” he said. “It will be better for the industry, long term.”

Collins delivered the presentation Economic Update and Industry Overview Feb. 15 during GlassWeek, hosted by the Glass Association of North America, Topeka, Kan.

On the residential side, 2.3 million homes went into foreclosure in 2008, an increase of 81 percent from 2007, Collins said. While he didn’t offer a precise prediction for the recovery of the housing market, but said many economists are pointing to the last half of 2009 or early 2010. “Home production tends to increase 15 percent to 30 percent in the first quarter of a recovery,” he said. “That will be one of our first indications that things are turning around.”

Housing has several things going for it in the current climate. “Commodity prices are down. Energy and material prices are down. That’s very positive. There are a lot of tax credits and other programs [to facilitate home buying] and the government is taking on lots of other programs in the stimulus package,” Collins said. Additionally, 14 million to 15 million new households will be created in the next 10 years, all creating a demand for housing, single or multifamily, according to the Joint Center for Housing Studies of Harvard University, Cambridge, Mass.

The multifamily sector will be boosted by former single family housing owners becoming renters, in addition to first-time buyers afraid to enter the single family market, Collins said. The Northeast ‘s multifamily will likely be the first to bounce out of the recession as the segment hasn’t been as overbuilt and has the lowest multifamily vacancy rates across the country. The Southeast and Southwest have the highest vacancy rates for multifamily and will take the longest to rebound, he said.

The industry has felt the slide of the commercial market, and Collins said the rebound for that segment will lag that of resident. “The companies on the residential side don’t have too much pity for those on the commercial side, because they’ve had it so good for so long, and they’re only just starting to crack,” Collins said. “Commercial lags residential by about 12 to 18 months. If an area isn’t doing well, you’ll have less demand for smoothie shops and businesses.”

The Western states have the lowest vacancy rates for the industrial segment and will be the first to rebound on that end; the Rustbelt region with the highest vacancy rates will be the last to recover, Collins said. For the retail segment, California has the lowest vacancy rates, and the Midwest the highest.