Volume 49, Issue 3 - March 2014

ContractGlazing

Nonresidential Building Activity Projected to Accelerate in 2014

Healthy fundamentals in the commercial property market combined with an international economy returning to more traditional growth levels are both factors in the projected increase in growth for the design and construction industry, according to a new report from the American Institute of Architects (AIA). Led by the hotel and retail project categories, the commercial sector looks to see the biggest gains in construction spending, with demand for institutional projects increasing at a more moderate level.

The AIA semi-annual “Consensus Construction Forecast,” a survey of the nation’s leading construction forecasters, projects that spending will see a 5.8-percent increase in 2014, with next year’s projections increasing to 8 percent.

“There should be a significant improvement in the outlook for the construction industry that has been recovering at a slow and steady pace …” — Kermit Baker

“Since the overall economy is stabilizing, there should be a significant improvement in the outlook for the construction industry that has been recovering at a slow and steady pace the last two years,” says AIA chief economist Kermit Baker, PhD, Hon. AIA. “At a more granular level, the surging housing market, growing commercial property values, and declining office and retail vacancies are all contributing to what is expected to amount to a much greater spending on nonresidential building projects.”

Baker continues, “The rosy outlook also contains several concerns for the entire construction industry. Rising construction costs, a shortage of skilled labor, and bank credit standards that have not eased up enough to keep pace with the strong demand for construction financing are all serious challenges to sustained growth in the coming years.”

 

Market Segment Consensus Growth Forecasts 2014 2015
Overall nonresidential building 5.8% 8.0%
Commercial/industrial 10.3% 10.8%
Hotels 13.1% 9.2%
Retail 10.5% 11.5%
Office buildings 9.2% 10.8%
Industrial facilities 7.8% 8.7%
Institutional 3.4% 6.3%
Amusement/recreation 9.9% 7.5%
Healthcare facilities 5.2% 7.8%
Education 2.8% 5.8%
Public safety -0.2% 3.1%
Religious -1.7% 1.3%

Source: AIA

Contractors Report Optimism About 2014

“[This year] should be the best year for the contracting industry since 2006,” says Ken Simonson, the Associated General Contractors of America’s (AGC) chief economist.

According to an AGC report, contractors haven’t been this optimistic about the outlook for the commercial construction market since the start of the recession roughly seven years ago. The group’s 2014 Construction Industry Hiring and Business Outlook report painted the rosiest picture for the industry in years. The report, which was based on a survey of more than 800 AGC members, forecasted industry demand in 2014 to grow or remain stable in virtually every market segment, prompting additional hiring by a majority of construction firms with few companies planning future layoffs. Nearly 75 percent of those surveyed expect to purchase new equipment in 2014, while 86 percent said they planned on leasing new equipment.

“Contractors are more optimistic about 2014 than they have been in a long time,” says Stephen Sandherr, the AGC’s CEO. “While the industry has a long way to go before it returns to the employment and activity levels it experienced in the middle of the last decade, conditions are heading in the right direction.”

Sandherr called the industry’s recovery “moderate and more even and slow” than most would have liked, but also cautioned against the new set of challenges that will accompany the expected growth.

Contractors surveyed say they expect to pay more in 2014 for materials and supplies, while health care costs continue to rise. Nearly two-thirds of survey respondents indicated that they are already having a difficult time finding qualified workers to fill key positions and that they expect workforce conditions to remain tough or tougher over the next year. Many firms also expect their operations to be negatively affected by government regulations and stiffer competition for jobs.

But the report will likely come as welcome news to an industry that was especially ravaged by the economic downturn and still short the nearly two million people employed by the industry during its peak in 2006.

Demand is expected to increase in virtually every market segment, but the plurality of contractors project certain key private sector market segments, such as manufacturing, retail, warehouse, lodging, hospital, higher education and private office, to fare especially well.

Many firms say they plan to begin hiring again in 2014, while relatively few intend to lay off workers. Forty-one percent of the companies surveyed that did not change staff levels last year say they plan on expanding their payrolls this year, while only two percent of firms reported that they plan on layoffs. Unlike the numerous cases of wholesale layoffs in prior years, the firms who say they are likely to cut staff in 2014 expect to make just modest changes to their workforce.



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