Forecast Gift Basket: Consensus sees blue skies ahead

Forecast Gift Basket: Consensus sees blue skies ahead

by KARL SORENSEN

Every year at this time, certain seasonal staples arrive that mark the beginning of the holiday season, and the conclusion of yet another calendar year: gift-wrapped boxes of socks, grandma's fruitcake, awkward family photos, and a veritable smorgasbord of economic forecasts for the coming year. In keeping with the spirit of the season, BuiltWorlds, as a service, has distilled four construction outlook reports for 2015 from Dodge, CMD, AIA and AGC. In a nutshell, here's your scorecard:

General Economic Trends for 2015:

• GDP gains to be 3% (AIA)
• Unemployment rate falling to 5.5% (Fed)
• Construction starts will rise 9% to $612B (a larger gain than the 5% increase to $564B estimated for 2014) (Dodge)
• Total construction spending to grow +6% to +10% per year until 2017 (AGC)
• Architectural Billings Index is showing contracts are growing faster than billings, indicating a buildup of backlogs (ABI)

Commercial Building in 2015:

• Dodge: will increase 15%. Office construction will lead the upturn, followed by expanding private development, technology and finance.
• AIA: both the office and hotel markets are projected to see combined 2014 and 2015 growth rates exceed 25%.
• CMD: commercial markets with strongest growth carrying into 2015 will be warehouses (up 50.4%), sports arenas and convention centers (up almost 49%), and retail (up 36.5%).
• AGC: be aware, with increased use of technology and online retail, demand for office space is expected to decrease in the future

Institutional Building in 2015:

• Dodge: will increase 9%. Continuing 2014 trends, K-12 school construction has grown through the help of recent construction bond measures.
• AIA: will increase 5.8%. Governors in 39 states are recommending spending increases for K-12 education, however the expectation is that the market conditions will not improve significantly. 
• CMD: state governments are expected to spend less on schools and infrastructure this year.

Single-Family Housing in 2015:

• Dodge: will rise 15% in dollars, and 11% in units to 700,000. However, the millennial generation has been sluggish to shift over to home ownership.
• AIA: units to approach 700,000, which is up from the low point of 430,000 of 2011.

Multi-Family Housing in 2015:

• Dodge: will increase 9% in dollars, and 7% in units to 405,000. The rental market continues to grow, but construction growth rates are decelerating as the multifamily market matures.
• AIA: units expected to be in the range of 350,000 and 400,000. 
• CMD: Upturn continues into 2015 as vacancy rates are showing multi-year lows in most cities as the demand for urban living increases.

Public Works in 2015:

• Dodge: construction will rebound 5%, following the 9% decline in 2014. 

Utilities in 2015:

• Dodge: will slip 9%, continuing the downward trend that's followed exceptional volume of construction during 2011-2012. 
• AGC: oil and gas fields, pipelines, rail, and data centers are markets to watch for increased spending. With increased efforts to extract oil from shale deposits, AGC Chief Economist Ken Simonson expects that there will be more related needs for roads, site prep and pad construction, storage ponds, support structures and pipes.

Manufacturing Plants in 2015:

• Dodge: will slide 16%, following huge increases in 2013 (+42%) and 2014 (+57%). 
• AGC: manufacturing, warehouses on "must watch" list for increased 2015 spending.

What does it all mean?

Next year is poised to be a very healthy year for the U.S. construction industry. Thanks to surging strength in the energy, high-tech and manufacturing arenas, falling unemployment data and increased capital spending, the GDP is expected to swell, project backlogs to increase, and the focus to shift toward a brighter future, finally shaking off the last remnants of an historically persistent recession. As we look long term, the AGC expects major growth to be the results of, among other things, Panama Canal improvements, increased investment into oil extraction from shale, and multi-family home construction. Aided by expected regulatory shifts in 2015, solar energy development also is expected to see particularly strong growth.

Unemployment levels are still a concern, as an AGC survey reveals that "80% of respondents reported having difficulty filling certain positions." Of the most difficult to fill, "66% had difficulty finding carpenters, 64% roofers, 59% equipment operators, 54% plumbers, 52% electricians, 48% project managers and superintendents, and 32% estimators." This is a 'quality problem', as they say, as it will spur our industry to ramp up hiring and training considerably and ASAP in 2015. After all, the work is there, so somebody will have to do it.

All told, the combined forecasts point to a strong year ahead for design, construction, the tech sector, and the built environment, as a whole. May all theses good predictions come true!

Happy Holidays & Happy New Year!