Redeeming old buildings is now No. 1 construction activity in US
To remodel, to renovate, or to rehabilitate instead of building a new structure - that used to be the $64 (plus inflation) question for property investment.
Many companies' managements and many individuals aren't asking it anymore - just going ahead with the renovation. According to a new survey by the Sweets Division of McGraw-Hill Information Systems Company, renovation dollar volume has outstripped new construction in the United States building industry.
The report, ''Renovation's Rewards: a 'Hidden' Construction Market,'' points out that although there are few historical benchmarks against which to measure renovation and rehabilitation (because no one was tracking the activity in the past), today's statistics on the subject from varied sources are dramatic.
The Department of Interior reported that 1,612 rehab projects with investment totals of $870 million qualified for tax incentives during the first six months of this year - an increase of 19 percent over a year ago.
Commercial Renovation magazine estimates the commercial renovation market for all of 1984 at $67 billion, based on 543,000 individual projects.
The National Association of Home Builders has established residential renovation as a $50 billion-a-year market and says the 9 percent increase from 1982-83 is typical of annual growth possibilities. This is supported by Department of Housing and Urban Development figures which showed remodeling as only 20 percent of the construction industry in 1960, but 33 percent by 1970 and 42 percent by 1980.
Interiors magazine says that 60 percent of corporate clients are remaining in their present headquarters rather than moving and that this factor is helping to expand the rehab economy.
Why the sort of sudden flap to spend money on rehab, anyway? Sweets' report lists these reasons:
* Prime land for erecting new structures has become scarce. Many metropolitan areas have expanded even beyond their suburban limits.
* The cost of new construction has escalated along with the cost of new mortgages. In the upscale home market, it makes more sense to ''fix it up,'' while retaining the lower-rate mortgage. Commercially, it's cheaper, analysts say, to renovate an older building than to erect a new one - and perhaps the older building is on more desirable land.
* Tax incentives that are available for rehab are not offered on new construction. And these have been sizable. The Tax Reform Act of 1976, which offered accelerated depreciation and tax deductions, was followed by the 1977 Revenue Act, which gave a 10 percent investment credit for historic rehab treatment. This was further augmented in the Economic Recovery Act of 1981, which raised tax credits to 25 percent and broadened the properties affected to include historic rental residential structures. In addition, the 1981 Act introduced a 15-year cost recovery program for rehabs (much faster depreciation).
* Demographics and attendant life styles have been changing. Needs for factories, schools, and hospitals have become fewer today, with more need showing up for offices, facilities for seniors, clinics, and rental housing.
Who is doing all this renovation?
Qualified Remodeler magazine reports that 70 percent is being handled professionally on an installed basis by the country's 38,000-plus independent contractors. More than half have been in the renovation business for over 15 years, and they report individual annual revenues exceeding $250,000.
And the bottom line: What does the future hold for the rehab industry?
Researchers forecast yearly growth rates of 15 to 20 percent. And the National Association of the Remodeling Industry which represents 3,000 contractors, estimates that by 1988 this rehab segment of construction will reach $73 billion annually.