Healthy outlook for construction market, despite rising challenges

After a strong 2015, there is a growing sense that the construction industry expansion will be more tempered over the next 18 months. However, continued strong demand for hotels, office space, and amusement and recreation spaces will ensure continued growth in the overall construction spending market over this time period.

The American Institute of Architects’ (AIA) semi-annual Consensus Construction Forecast, a survey of the nation’s leading construction forecasters, is projecting that spending will increase just less than 6 percent for 2016, with next year’s projection being an additional 5.6-percent gain.

“Healthy job growth, strong consumer confidence and low interest rates are several positive factors in the economy, which will allow some of the pent-up demand from the last downturn to go forward,” said AIA chief economist, Kermit Baker, PhD, Hon. AIA. “But at the same time, the slowing in the overall economy could extend to the construction industry a bit, with the biggest drop off expected in the industrial facility sector over the next year and a half.”

Market Segment Consensus Growth Forecasts        2016        2017
Overall nonresidential building                                        5.8%       5.6%
Commercial/industrial                                                     11.7 %    6.5%
Hotels                                                                              17.9%     7.6%
Office space                                                                    14.7%     7.5%
Retail                                                                               7.4%       5.2%
Industrial facilities                                                          -2.1%       2.9%
Institutional                                                                      4.5%       5.8%
Amusement/recreation                                                    10.0%     5.7%
Education                                                                         6.5%      6.3%
Healthcare facilities                                                          2.3%      5.0%
Religious                                                                         -0.4%      1.9%
Public safety                                                                   -3.7%      3.3%

Baker added, “The issues that could derail continued expansion in the construction sector include weak U.S. manufacturing output, struggling economies in key international markets, the ripple effect from the Brexit decision, and the typical uncertainty leading up to a U.S. presidential election that results in reluctant investors.”

The AIA Consensus Construction Forecast Panel is conducted twice a year with the leading nonresidential construction forecasters in the U.S. including, Dodge Data & Analytics, Wells Fargo Securities, IHS-Global Insight, Moody’s economy.com, ConstructConnect, Associated Builders & Contractors and FMI. The purpose of the Consensus Construction Forecast Panel is to project business conditions in the construction industry over the coming 12 to 18 months. The Consensus Construction Forecast Panel has been conducted for 17 years.