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
Contractors | Oct 19, 2023
Crane Index indicates slowing private-sector construction
Private-sector construction in major North American cities is slowing, according to the latest RLB Crane Index. The number of tower cranes in use declined 10% since the first quarter of 2023. The index, compiled by consulting firm Rider Levett Bucknall (RLB), found that only two of 14 cities—Boston and Toronto—saw increased crane counts.
Market Data | Oct 2, 2023
Nonresidential construction spending rises 0.4% in August 2023, led by manufacturing and public works sectors
National nonresidential construction spending increased 0.4% in August, according to an Associated Builders and Contractors analysis of data published today by the U.S. Census Bureau. On a seasonally adjusted annualized basis, nonresidential spending totaled $1.09 trillion.
Giants 400 | Sep 28, 2023
Top 100 University Building Construction Firms for 2023
Turner Construction, Whiting-Turner Contracting Co., STO Building Group, Suffolk Construction, and Skanska USA top BD+C's ranking of the nation's largest university sector contractors and construction management firms for 2023, as reported in Building Design+Construction's 2023 Giants 400 Report. Note: This ranking includes revenue for all university/college-related buildings except student residence halls, sports/recreation facilities, laboratories, S+T-related buildings, parking facilities, and performing arts centers (revenue for those buildings are reported in their respective Giants 400 ranking).
Construction Costs | Sep 28, 2023
U.S. construction market moves toward building material price stabilization
The newly released Quarterly Construction Cost Insights Report for Q3 2023 from Gordian reveals material costs remain high compared to prior years, but there is a move towards price stabilization for building and construction materials after years of significant fluctuations. In this report, top industry experts from Gordian, as well as from Gilbane, McCarthy Building Companies, and DPR Construction weigh in on the overall trends seen for construction material costs, and offer innovative solutions to navigate this terrain.
Data Centers | Sep 21, 2023
North American data center construction rises 25% to record high in first half of 2023, driven by growth of artificial intelligence
CBRE’s latest North American Data Center Trends Report found there is 2,287.6 megawatts (MW) of data center supply currently under construction in primary markets, reaching a new all-time high with more than 70% already preleased.
Contractors | Sep 12, 2023
The average U.S. contractor has 9.2 months worth of construction work in the pipeline, as of August 2023
Associated Builders and Contractors' Construction Backlog Indicator declined to 9.2 months in August, down 0.1 month, according to an ABC member survey conducted from Aug. 21 to Sept. 6. The reading is 0.5 months above the August 2022 level.
Contractors | Sep 11, 2023
Construction industry skills shortage is contributing to project delays
Relatively few candidates looking for work in the construction industry have the necessary skills to do the job well, according to a survey of construction industry managers by the Associated General Contractors of America (AGC) and Autodesk.
Market Data | Sep 6, 2023
Far slower construction activity forecast in JLL’s Midyear update
The good news is that market data indicate total construction costs are leveling off.
Giants 400 | Sep 5, 2023
Top 80 Construction Management Firms for 2023
Alfa Tech, CBRE Group, Skyline Construction, Hill International, and JLL top the rankings of the nation's largest construction management (as agent) and program/project management firms for nonresidential buildings and multifamily housing work, as reported in Building Design+Construction's 2023 Giants 400 Report.
Giants 400 | Sep 5, 2023
Top 150 Contractors for 2023
Turner Construction, STO Building Group, DPR Construction, Whiting-Turner Contracting Co., and Clark Group head the ranking of the nation's largest general contractors, CM at risk firms, and design-builders for nonresidential buildings and multifamily buildings work, as reported in Building Design+Construction's 2023 Giants 400 Report.