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
Office Buildings | Mar 27, 2024
A new Singapore office campus inaugurates the Jurong Innovation District, a business park located in a tropical rainforest
Surbana Jurong, an urban, infrastructure and managed services consulting firm, recently opened its new headquarters in Singapore. Surbana Jurong Campus inaugurates the Jurong Innovation District, a business park set in a tropical rainforest.
Cultural Facilities | Mar 27, 2024
Kansas City’s new Sobela Ocean Aquarium home to nearly 8,000 animals in 34 habitats
Kansas City’s new Sobela Ocean Aquarium is a world-class facility home to nearly 8,000 animals in 34 habitats ranging from small tanks to a giant 400,000-gallon shark tank.
Cultural Facilities | Mar 26, 2024
Renovation restores century-old Brooklyn Paramount Theater to its original use
The renovation of the iconic Brooklyn Paramount Theater restored the building to its original purpose as a movie theater and music performance venue. Long Island University had acquired the venue in the 1960s and repurposed it as the school’s basketball court.
Green | Mar 25, 2024
Zero-carbon multifamily development designed for transactive energy
Living EmPower House, which is set to be the first zero-carbon, replicable, and equitable multifamily development designed for transactive energy, recently was awarded a $9 million Next EPIC Grant Construction Loan from the State of California.
Museums | Mar 25, 2024
Chrysler Museum of Art’s newly expanded Perry Glass Studio will display the art of glassmaking
In Norfolk, Va., the Chrysler Museum of Art’s Perry Glass Studio, an educational facility for glassmaking, will open a new addition in May. That will be followed by a renovation of the existing building scheduled for completion in December.
Sustainability | Mar 21, 2024
World’s first TRUE-certified building project completed in California
GENESIS Marina, an expansive laboratory and office campus in Brisbane, Calif., is the world’s first Total Resource Use and Efficiency (TRUE)-certified construction endeavor. The certification recognizes projects that achieve outstanding levels of resource efficiency through waste reduction, reuse, and recycling practices.
Office Buildings | Mar 21, 2024
Corporate carbon reduction pledges will have big impact on office market
Corporate carbon reduction commitments will have a significant impact on office leasing over the next few years. Businesses that have pledged to reduce their organization’s impact on climate change must ensure their next lease allows them to show material progress on their goals, according to a report by JLL.
Adaptive Reuse | Mar 21, 2024
Massachusetts launches program to spur office-to-residential conversions statewide
Massachusetts Gov. Maura Healey recently launched a program to help cities across the state identify underused office buildings that are best suited for residential conversions.
Legislation | Mar 21, 2024
Bill would mandate solar panels on public buildings in New York City
A recently introduced bill in the New York City Council would mandate solar panel installations on the roofs of all city-owned buildings. The legislation would require 100 MW of solar photovoltaic systems be installed on public buildings by the end of 2025.