AIA consensus forecast sees construction spending on rise through next year

But several factors could make the industry downshift.

July 26, 2016 |

Acumen Development Partners recently broke ground on the first tri-branded Marriott Hotel. The 470-room, $137 million project, adjacent to the Music City Center in Nashville, Tenn., is scheduled to be completed in 2018. Spending on hotel construction nationwide, which has boomed of late, is expected to level off in 2017, according to AIA's latest Consensus Forecast Panel. Image: Acumen Development Partners

Slower growth in the general economy, brought on by seemingly mounting national and international vulnerabilities, is putting downward pressure on the construction industry, whose sectors expanded last year by 20% or more but are moderating to single-digit growth levels.

That’s the viewpoint of the American Institute of Architects’ semiannual Consensus Construction Forecast Panel, which expects building construction spending to increase by just under 6%, its growth rate through the first half of the year, through 2017. 

To view an interactive chart comparing the forecasts from the seven market watchers on the Panel, click here.

AIA puts out its Consensus to project business conditions for the coming 12 to 18 months. Kermit Baker, Hon. AIA, the Institute’s chief economist, notes that several factors—job growth, consumer confidence, low interest and inflation rates, and a trending single-family housing market—offer positive economic signs.

Good reception is also coming from AIA’s Architectural Buildings Index, a historically reliable indicator of future spending in the nonresidential sector. The latest data indicate that architectural firms are increasing their backlog of project activity.

Still, there is a growing list of issues “that threatens to unhinge this economic expansion, both national and international,” Baker writes.

These include:

•A weak manufacturing sector, which has declined 13 of the past 17 months dating back to the beginning of 2015.

•Sagging international economies that could diminish U.S. exports. China, Brazil, and Russia “continue to face difficulties,” observes Baker. And the U.K.’s recent split from the European Union could instigate more restrictive trade policies. On the other hand, a stronger U.S. dollar provides incentives for increasing imports.

•The upcoming presidential election, and the “unusually high” level of uncertainty regarding post-election policies.

Baker cites a recent Urban Land-generated consensus forecast of real estate trends that suggests “we are in the latter stages of this current real estate cycle,” where vacancy rates are expected to increase, and rent increases to slow, for multifamily housing and hotel rooms through 2017 and 2018.

Spending on hotel construction is on pace to increase by a still-healthy 7.6% in 2017, but down from 17.9% in 2016, according to AIA’s consensus forecast.  Office space spending will grow by 14.7% this year, but only by 7.5% next.

The institutional side is expected rise by 6.7% this year and next. Healthcare facilities spending should increase to 5% next year, from 2.3% in 2016. Public Safety is expected to recover from a 3.7% decline to a 3.3% gain next year. Spending on Education construction, one of the industry’s big tickets, should see a slight downtick in growth, to 6.3% in 2017 from 6.5% this year.

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