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Nonresidential Construction Slated for Upswing, AIA Says

Tuesday, August 7, 2012

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The American Institute of Architects (AIA) predicts a 4.4% increase in nonresidential construction spending for the rest of the year and into 2013, thanks to a sharp spike in demand for industrial facilities and continuous demand for hotels and retail projects.

The latest AIA Consensus Construction Forecast figures are an improvement over January’s projection of a 2.1% increase in spending.

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Commercial and industrial projects are poised to lead building sectors, AIA reports.

The semi-annual forecast, a survey of the nation’s major forecasters, also anticipates a 6.2% increase in spending in 2013.

“With companies looking to bring back manufacturing jobs from overseas, there has been a sharp rise in demand for industrial facilities, which is leading to an upward revision in projections for future construction spending,” said Kermit Baker, AIA chief economist.

Market Segment Growth

Commercial construction spending, including industrial facilities and warehouses, hotels, retail and office buildings, is expected to increase to 5.7% this year and jump to 10.2% in 2013, AIA said.

On the other hand, growth in institutional sectors, including health-care facilities, education, religious, amusement and recreation, and public safety facilities is anticipated to rise only 0.7% for the year and 3% in 2013.

“Continued budget shortfalls at the state and local level, along with a depressed municipal bond market, are holding the institutional market back from seeing similar upticks in spending,” said Baker.

Risk No. 1: Fiscal Cliff

What risks could undermine those projections? “Federal tax and spending changes—the so-called fiscal cliff—that may come into play in early 2013 could upset the economic applecart and prove detrimental to recovery possibilities,” said Baker. 

He added: “We will likely have a better sense after the presidential election what will happen with regards to the Bush-era tax cuts, Social Security payroll tax, extended unemployment, and deficit reduction plans that will have a ripple effect that will extend to the construction industry.”

The Forecast

The AIA Consensus Construction Forecast panel includes forecasters from McGraw Hill Construction, Wells Fargo Securities, IHS-Global Insight, Moody’s economy.com, Reed Business Information, Associated Builders & Contractors and FMI. 

The purpose of the panel is to project business conditions in the construction industry over the coming 12 to 18 months. The panel has been conducted for 13 years.