Nonresidential/Commercial Construction Spending Exceeded All Expectations in 2015 and Continued Growth is Projected in 2016…

Despite a decline in consumer spending and continued weakness in the manufacturing sector, construction spending exceeded all expectations in 2015 – especially in the nonresidential market. Construction spending actually increased every month last year. In particular, non-residential construction projects were at a seven-year high. This marks the first year in recent memory that the nonresidential construction sector surpassed previous projections. This was accomplished despite obstacles like a reluctance on the part of financial lenders to support the real estate market, the looming threat of historically low interest rates rising, and a reduction in energy-related capital spending.

According to the semi-annual American Institute of Architects’ (AIA) Consensus Construction Forecast, spending is projected to once again moderately increase by more than 8% in 2016. Even better, 2017 projections call for another 6.7% gain.

So, what’s driving this construction spending? There’s currently a strong demand for entertainment districts, office space, hotels, amusement or recreation spaces, and manufacturing facilities. The Consensus Construction Forecast for 2016 and 2017 projects continued growth in these market segments – breaking everything down as follows:

  • Hotels – 14.8% in 2016 / 7.8% in 2017
  • Office Space – 12.8% in 2016 / 8.8% in 2017
  • Industrial Facilities – 11.9% in 2016 / 5.3% in 2017
  • Amusement/Recreation – 11.2% in 2016 / 7.7% in 2017
  • Commercial/Industrial Buildings – 9.9% in 2016 / 7.7% in 2017
  • Overall Non-Residential Building – 8.3% in 2016 / 6.7% in 2017
  • Retail – 7.5% in 2016 / 5.6% in 2017
  • Institutional Facilities – 6.7% in 2016 / 6.7% in 2017
  • Healthcare Facilities – 6.6% in 2016 / 6.9% in 2017
  • Religious – 2.6% in 2016 / 4.0% in 2017
  • Public Safety – 1.8% in 2016 / 4.2% in 2017

What the data from 2015 suggests is the economy is still strong despite the slowing of some sectors. Employment is up. In fact, the construction industry is responsible for roughly 10% of the new jobs created last year. Energy prices remain low, which is good for anyone not in the energy production business. And congress and the administration have actually managed to work together on the federal budget and debt ceiling.

The semi-annual AIA Consensus Construction Forecast Panel is based on insight from some of the top nonresidential construction forecasters in the U.S. such as Wells Fargo Securities, Dodge Data & Analytics, Moody’s economy.com, Associated Builders & Contractors, CMD Group, IHS-Global Insight, and FMI. The forecast has been conducted for 17 years to project construction industry business conditions for the next 12 to 18 months.