The mid-year conclusions from this year’s AIA Consensus Forecast indicate that slower growth in the economy has also affected the construction industry.
What is the AIA Consensus Forecast?
“It’s conducted twice a year with the leading nonresidential construction forecasters in the United States including, McGraw-Hill Construction, IHS-Global Insight, Moody’s Economy.com, FMI, Reed Construction Data, Associated Builders & Contractors, and Wells Fargo Securities. 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 has been conducted for 15 years.”
While 2015 saw 20% growth in the commercial and industrial construction sectors, growth in 2016 is expected to be more moderate because:
- manufacturing remains weak;
- struggling international economies (China, Brazil, and Russia) affect US exports;
- lingering fears over Brexit may result in restrictive trade policies; and
- ongoing uncertainty created by presidential elections—and this one in particular—depresses economic growth in the six months leading up to the election.
Nevertheless, there are good signs:
- job growth is healthy;
- unemployment rate is below 5%;
- inflation is low;
- energy costs are lower than in decades;
- interest rates are at record low levels;
- stock market is high; and
- single-family housing market is expected to grow.
Overall building construction spending is expected to grow around 6% this year and stay in that range for 2017. Commercial construction is expected to be the strongest performer this year, although slower growth is predicted for 2017. Hotels are expected to grow almost 18% in 2016 and office construction 14.7%. Both will have declined growth in 2017.
Institutional construction, although down a bit from last year, is predicted to increase in 2017. Educational facilities should do well with gains in excess of 6% for this year and next year. The health care sector fell to 2.3% this year, but should increase to 5% in 2017. Amusement and recreation construction has a predicted growth of 10% in 2016, with decreased growth in 2017.
A consensus of real estate trends conducted by Urban Land Institute forecasts an increase in vacancy rates and slowing rent increases in multi-family housing, with slower rent gains for office and retail sectors. These may predict a decrease in construction activity in the coming quarters.
On a positive note, the Architecture Billings Index (ABI) has been showing a positive trend since 2012 and continues to document increases in design activity at U.S. architecture firms. The ABI is an indicator of construction activity that is based on a survey of firms that are members of the AIA. The index reflects the approximate 9-12 month lag between architecture billings and construction spending.