Industrial should fuel 7% rise in commercial construction

That’s according to annual predictions from the Census Bureau and the American Institute of Architects.

The AIA has been compiling consensus forecasts for about 20 years. The biannual index averages the economic forecasts of seven leading industry analysts with regard to construction spending put in place, defined by the Census Bureau as the “total dollar value of construction work done in the U.S.”

It is important to note that each is a mathematical average of the participants’ forecasts, but because there are no standard definitions for some of the nonresidential building categories, the numbers from one forecast to another do not always align perfectly.

The AIA projected growth in overall nonresidential building spending of almost 6 percent in 2017, just below the pace of growth for 2016.

The commercial construction sectors – retail, office and hotel – will continue to lead the building recovery, while industrial construction is projected to see almost no increase this year.

For 2018, the institutional construction sectors will generate much of the growth, particularly the large education structures market.

STABILITY ON THE WAY

A look at the Census Bureau grand total forecasts (year to year) of put-in-place construction reveals projected increases of 7.2 percent for 2017, 7.3 percent for 2018 and 7.2 percent for 2019. These figures suggest that stability in construction is expected over the next two-and-a-half years.

Total nonresidential construction spending will move in a positive direction, beginning slowly, but then picking up speed over the next couple of years with 4.1 percent growth in 2018 and 5.2 percent in 2019.

The commercial construction sector gained in 2016, and some analysts predicted strong growth in 2017. Dramatic examples include reports that show construction spending on hotels was up 25 percent in 2016 and office space spending was up more than 20 percent.

The consensus forecast from AIA is a prediction of an increase of 10 percent in 2017.

WIDE RANGE

Other commercial construction forecasts for 2017 included Wells Fargo Securities LLC of Charlotte, N.C., which projects an 18 percent increase, and Dodge Data & Analytics of New York, which projects a 14.4 percent increase.

However, some analysts have much lower expectations: FMI Corp., Raleigh, N.C., projects a 4.9 percent increase, and Associated Builders and Contractors, Washington, D.C., projects a 6.5 percent increase.

Total institutional construction starts are projected to continue along the 4.6 percent growth rate that occurred in 2016. The projections are 3.6 percent growth in 2017, 4.9 percent growth in 2018 and 5.1 percent growth in 2019.

HEALTH CARE SECTOR TO SURGE

Health care construction is projected to grow just 1.4 percent in 2017, but it will become revitalized in 2018 with 6.6 percent growth and in 2019 with a 7.6 percent growth.

This commercial construction sector needs Congress to provide a stable framework – with respect to maintaining, modifying, repealing or replacing the Affordable Care Act – upon which health care providers can craft their capital spending plans. 

The AIA notes that the forecasts come as the overall U.S. economy is performing well, with good job growth, low fuel prices and strong business and consumer confidence.

One of the big unknowns for 2018 and beyond is when the next cyclical recession will arrive.

‘CAPITALIZE ON WHAT COMES’

It is important to remember that forecasts are an estimate.

So when we read and review forecasts for commercial construction, it would be prudent to consider some sage advice from the late Zig Ziglar, an American author and business coach and trainer, who said:

“Expect the best. Prepare for the worst. Capitalize on what comes.”

Longtime contributor Glenn Ebersole is a strategic business development/marketing executive and leader. He can be reached at [email protected] or 717-575-8572.