Hawai'i's construction industry is expected to experience slower growth this year and begin to contract next year, according to a forecast released today by the University of Hawai'i.

However, the industry is poised for a soft landing as hotel renovations and industrial and commercial construction provide a stabilizing influence in the face of a weakening residential sector, according to the report from the University of Hawai'i Economic Research Organization.

Among the potential risks facing the construction industry are tightening of lending practices in the wake of recent financial market turmoil, the report said.

"While there are currently no signs of a significant and prolonged downturn in Hawai'i's construction sector, any further worsening in the availability or cost of credit will adversely impact this forecast," according to the report.

New home construction activity, which peaked in 2005, dropped off 27 percent in 2006. Permits are forecast to decline 4.2 percent this year, followed by a double-digit drop in 2008.

Nonresidential construction activity continued rising through last year. Permits for commercial buildings are expected to dip from $1.96 billion in 2006 to $1.70 billion in 2007 and hover near $1.63 billion for several years.

Government construction contracts are expected to remain stable in the $850 million to $900 million range for the next several years.

Reach Sean Hao at shao@honoluluadvertiser.com.