Despite what it describes as a “chaotic” year saddled with labor shortages and interest-rate creep, the American Institute of Architects (AIA) estimates that spending for nonresidential construction increased by nearly 8% in 2016. That growth is expected to continue for “another couple of years,” albeit somewhat more modestly.
The AIA Consensus Forecast projects a 5.6% increase in nonres construction spending this year, and 4.8% in 2018, with commercial and industrial sectors growing at slower rates. (AIA did not include dollar amounts with its forecast.) And certain sectors, such as offices and hotels, are expected to cool considerably.
Offices, which increased by more than 20% in 2016, will grow 10.6% this year and by 4.6% in 2018, by AIA’s reckoning. Hotel spending, up 25% last year, should rise by 7.2% in 2017, but only by 1.8% the following year, according to AIA projections. Spending on healthcare building is expected to stay at nearly 5% growth this year and next.
Office construction spending is expected to stay relatively strong this year, with some fading in 2018. But hotel construction is expected to experience a significant decline. Image: AIA Consensus Construction Forecast.
AIA’s forecast is in line with other industry watchers, with the notable exception of a rosier portrait painted by Dodge Data and Analytics, which estimates that nonres spending, at $406.9 billion last year, will increase by 8.2% this year and by 7.3% in 2018. Dodge is far more bullish than AIA on office construction. But it also sees negative growth in the hotel sector in 2018.
On the flip side, FMI expects growth this year to be only 4.4%, and 4.1% in 2018, and foresees a weaker industrial sector than some of the other prognosticators.
Kermit Baker, Hon. AIA, AIA’s chief economist, addressed several issues affecting construction spending that could be impacted by the new Trump administration. For example, infrastructure spending, which is currently at about $1.2 trillion a year, could get a big boost if proposals to spend another $1 trillion over the next decade are realized.
The proposed repeal of the Affordable Care Act, and what would replace it are serious concerns for a construction industry where healthcare accounts for about 10% of total spending.
Trump has also promised “massive” regulatory rollbacks, especially on the environment front. Baker cites an NAHB study posted last May that attributes 24.3% of the price of a single-family home to government regulations. (Three-fifths of this is due to higher finished lot costs resulting from regulations.)
Baker also touches immigration restrictions that could “exacerbate an already serious labor problem” in a construction industry that is “most reliant on immigration for its workforce.”
On the whole, though, AIA is “quite positive” about the prospects for the construction sector, which it expects to outperform the broader economy over the next two years. However, AIA also see an industry “on the down side of this construction cycle.” The commercial sector is expected to show signs of slowing first, and AIA foresees its growth rate dropping from 17% in 2017, to 8% this year and just over 4% in 2018.
“Being this late in the cycle, the industry is more vulnerable to external disruptions, and the list of possibilities in this category is very long at present,” Baker writes.
Related Stories
Market Data | Oct 24, 2016
New construction starts in 2017 to increase 5% to $713 billion
Dodge Outlook Report predicts moderate growth for most project types – single family housing, commercial and institutional building, and public works, while multifamily housing levels off and electric utilities/gas plants decline.
High-rise Construction | Oct 21, 2016
The world’s 100 tallest buildings: Which architects have designed the most?
Two firms stand well above the others when it comes to the number of tall buildings they have designed.
Market Data | Oct 19, 2016
Architecture Billings Index slips consecutive months for first time since 2012
“This recent backslide should act as a warning signal,” said AIA Chief Economist, Kermit Baker.
Market Data | Oct 11, 2016
Building design revenue topped $28 billion in 2015
Growing profitability at architecture firms has led to reinvestment and expansion
Market Data | Oct 4, 2016
Nonresidential spending slips in August
Public sector spending is declining faster than the private sector.
Industry Research | Oct 3, 2016
Structure Tone survey shows cost is still a major barrier to building green
Climate change, resilience and wellness are also growing concerns.
Industry Research | Sep 27, 2016
Sterling Risk Sentiment Index indicates risk exposure perception remains stable in construction industry
Nearly half (45%) of those polled say election year uncertainty has a negative effect on risk perception in the construction market.
Market Data | Sep 22, 2016
Architecture Billings Index slips, overall outlook remains positive
Business conditions are slumping in the Northeast.
Market Data | Sep 20, 2016
Backlog skyrockets for largest firms during second quarter, but falls to 8.5 months overall
While a handful of commercial construction segments continue to be associated with expanding volumes, for the most part, the average contractor is no longer getting busier, says ABC Chief Economist Anirban Basu.
Designers | Sep 13, 2016
5 trends propelling a new era of food halls
Food halls have not only become an economical solution for restauranteurs and chefs experiencing skyrocketing retail prices and rents in large cities, but they also tap into our increased interest in gourmet locally sourced food, writes Gensler's Toshi Kasai.