Nonresidential building is on track to achieve a “breakout year” in 2015, during which spending growth could exceed 20%, according to projections by construction giant Gilbane in its Summer 2015 Construction Economics Report, “Building for the Future.”
Through the first six months of the year, construction spending for residential, nonresidential building, and nonbuilding structures was increasing at the fastest pace since 2004-2005. On that basis, Gilbane expects total construction spending to expand by 10.9% to $1.067 trillion this year (the second-highest growth total ever recorded), and by more than 8% in 2016. Construction starts are expected to be up by 13.1% to 670,595 units this year.
Nonresidential building starts, which hit a 10-year low in 2012, have been increasing at an average of 17% per year. Nonresidential buildings starts since March 2014 posted the best five quarters since the third quarter of 2008. Although growth should continue, expect it to do so at a more moderate rate, says Gilbane, which predicts those starts to increase this year by only 4.5% to 228,785 units. That construction activity, however, has been driving spending, which Gilbane predicts will increase by 20.2% to $396.7 billion this year. “Escalation will climb to levels typical of rapidly growing markets,” Gilbane observes.
But nonres building’s strengths vary markedly by sector:
- Total spending for manufacturing buildings in 2015 will reach $86.4 billion, up nearly 50% from 2014. No market sector has ever before recorded a 50% year-over-year increase, and manufacturing could replace perennial leader Education as nonres building’s biggest contributing sector. Gilbane foresees spending in this sector cooling off a bit next year to a still-strong 9% increase. Gilbane points out that the manufacturing sector, through the first half of 2015, accounted for 50% of total private construction spending, which is expected to increase this year by 14.5% to $781 billion.
- Spending for educational buildings in 2015 will total $85.3 billion, a 7.1% increase from 2014, the sector’s first substantial increase since 2008. After hitting a low in the fourth quarter of 2013 not seen since 2004, educational spending has rebounded steadily. Gilbane forecasts a 6% gain in 2016.
- Total spending for healthcare construction in 2015 should be up 7% to $41.1 billion. Healthcare spending is slowly recovering after descending to an eight-year low in the fourth quarter 2014. Spending is expected to rise by 6% in 2016.
- Spending for commercial/retail buildings—which was nonres’ strongest growth market in 2012 through 2014—is projected to jump by 8.8% to $68.2 billion this year. Gilbane notes that this sector. Commercial retail is expected to realize a gain of 5.4% in 2016.
- Office building spending in 2015 is on pace to grow by 21.2% to $55.8 billion this year, on top of a 21.3% increase in 2014. Office spending will maintain upward momentum in 2016 but at a slower pace, to 8.4%.
In its report, Gilbane discusses spending for residential construction, which it expects to grow this year by 12.9% to $388 billion, and then to taper off to a 0.7% increase in 2016. “In fact, from the fourth quarter of 2013 through March 2015, new housing starts practically stalled and the rate of residential spending declined,” Gilbane states.
Gilbane is skeptical—to say the least—about other forecasts that project housing starts to reach between 1.3 million and 1.5 million units this year, which would be twice to three times historical growth rates.
The Commerce Department’s estimates for July show housing starts rose by 0.2% to a seasonally adjusted annualized rate of 1.119 million units. Multifamily starts, which over the past few years have fueled housing’s growth, were off 17% to an annualized rate of 413,000 units.
In all construction sectors, the biggest potential constraint to growth continues to be the availability of labor. Gilbane notes that the number of unfilled positions on the Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey for the construction industry has been over 100,000 for 26 of the 28 months through June 2015, and has been trending up since 2012.
“As work volume begins to increase over the next few years, expect productivity to decline,” Gilbane cautions.
Related Stories
| Nov 27, 2013
Retail renaissance: What's next?
The retail construction category, long in the doldrums, is roaring back to life. Send us your comments and projects as we prepare coverage for this exciting sector.
| Nov 27, 2013
Pediatric hospitals improve care with flexible, age-sensitive design
Pediatric hospitals face many of the same concerns as their adult counterparts. Inpatient bed demand is declining, outpatient visits are soaring, and there is a higher level of focus on prevention and reduced readmissions.
| Nov 27, 2013
Exclusive survey: Revenues increased at nearly half of AEC firms in 2013
Forty-six percent of the respondents to an exclusive BD+C survey of AEC professionals reported that revenues had increased this year compared to 2012, with another 24.2% saying cash flow had stayed the same.
| Nov 27, 2013
Wonder walls: 13 choices for the building envelope
BD+C editors present a roundup of the latest technologies and applications in exterior wall systems, from a tapered metal wall installation in Oklahoma to a textured precast concrete solution in North Carolina.
| Nov 27, 2013
University reconstruction projects: The 5 keys to success
This AIA CES Discovery course discusses the environmental, economic, and market pressures affecting facility planning for universities and colleges, and outlines current approaches to renovations for critical academic spaces.
| Nov 26, 2013
7 ways to make your firm more successful
Like all professional services businesses, AEC firms are challenged to effectively manage people. And even though people can be rather unpredictable, a firm’s success doesn’t have to be. Here are seven ways to make your firm more successful in the face of market variability and uncertainty.
| Nov 26, 2013
Design-build downsized: Applying the design-build method in an era of smaller projects
Any project can benefit from the collaborative spirit and cooperative relationships embodied by design-build. But is there a point of diminishing return where the design-build project delivery model just doesn't make sense for small projects? Design-build expert Lisa Cooley debates the issue.
| Nov 25, 2013
Insider tips on how to get picked a BD+C 40 Under 40 winner
We just posted the Entry Form for our 9th Annual BD+C "40 Under 40" competition. Frankly, the Entry Form is just the basic data. The real meat of your entry is your Personal Statement.
| Nov 25, 2013
Electronic plan review: Coming soon to a city near you?
With all the effort AEC professionals put into leveraging technology to communicate digitally on projects, it is a shame that there is often one major road block that becomes the paper in their otherwise “paperless” project: the local city planning and permitting department.
| Nov 22, 2013
Kieran Timberlake, PE International develop BIM tool for green building life cycle assessment
Kieran Timberlake and PE International have developed Tally, an analysis tool to help BIM users keep better score of their projects’ complete environmental footprints.
