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Commercial Market Comes Roaring Back

Friday, February 6, 2015

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If you build schools, hotels, hospitals or offices, 2015 and 2016 are your years, according to a new U.S. construction forecast that heralds a long-awaited comeback in the institutional and commercial sectors.

Double-digit increases in commercial construction spending are expected for 2015, led by "vigorous levels of demand for hotels and office buildings."

MiamiRiverConstruction
iStock.com / chang

Double-digit increases in U.S. commercial construction spending are expected this year. Construction activity along the Miami River reflects the sector's general strength in the South.

Hotel construction spending is predicted to rise by 15.3 percent this year and 10.4 percent in 2016, while office construction is looking at growth rates of 12.9 and 11.5 percent, respectively.

That's the forecast from the American Institute of Architects' semi-annual Consensus Construction Forecast, a meta-forecast that surveys the nation's leading nonresidential construction forecasters. That group includes McGraw Hill Construction; Wells Fargo Securities; IHS-Global Insight; Moody’s economy.com; Reed Business Information; Associated Builders & Contractors; and FMI.

You Say You Want an Institution...

Overall, construction spending is expected to increase by 7.7 percent this year and 8.2 percent in 2016, the forecasters say.

“This is the first time since the Great Recession that every major building category is projected to see increases in spending,” said AIA Chief Economist Kermit Baker, PhD.

AIA Chief Economist Kermit Baker, PhD., calls recovery in the institutional sector "the last piece of the puzzle."

“But by far, the most significant driver that will fuel greater expansion in the marketplace is the revival in the institutional sector—especially with growing demand for new healthcare and education facilities, which alone traditionally account for a third of spending on new building construction.”

Institutional construction typically accounts for half of all billings at U.S. architectural firms. That sector had been struggling but is now the "last piece of the puzzle, the last piece of the construction sector to fall into place," Baker said in a video presentation of the forecast.

He attributes the improvement to pent-up demand and greater security, especially by local governments, to pursue projects.

'The Right Direction'

The growth comes on the heels of a year, 2014, that registered its best GDP, highest housing starts, and lowest unemployment rate in three years, Baker said.

ConstructionSpending15-16
AIA

AIA's Consensus Construction Forecast compiles outlooks from other organizations, including McGraw Hill Construction, Moody’s economy.com, Reed Business Information, Associated Builders & Contractors, and FMI.

"On all the major indicators of the health of our economy, we're moving in the right direction," despite a stock market that remains "incredibly volatile," Baker said.

Consumer confidence is back to its pre-recession levels, he added.

The View by Region

On the other hand, the recovery is not progressing evenly nationwide, which Baker called "somewhat concerning."

The South, particularly South-Central states, are doing "extremely well," while the West is "building up steam" and the Midwest has "hung in pretty well."

ConstructionForecast

“This is the first time since the Great Recession that every major building category is projected to see increases in spending,” says AIA's chief economist.

The Northeast has been relatively weak in recent months, however, for reasons Baker said he could not explain. Still, he anticipated improvement there.

“The overall construction industry appears to be on very solid ground for the next two years," Baker said.

"That said, uncertainties in international economies, potential labor shortages, lower energy costs, rising interest rates and construction costs all are factors that we will be watching closely to see how they may adversely impact the marketplace.”

   

Tagged categories: American Institute of Architects (AIA); Construction; Economy; FMI; Health Care/Hospitals; Hotels; Market forecasts; McGraw-Hill; Office Buildings; Schools

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