Construction Spending Projections Scaled Back for Rest of Year

Construction spending projections for the rest of the year have been lowered slightly, according to the American Institute of Architects (AIA) Consensus Construction Forecast Panel.

The panel cites the weather-related slow start in the nonresidential building market and continued weakness in the institutional sector as the main culprits of the lowered projections, though the panel says the commercial construction sector is still looking at solid spending increases throughout the remainder of 2014, paced by high levels of demand for hotels and office buildings.

The AIA’s Consensus Construction Forecast, a survey of the nation’s leading construction forecasters, projects spending will see a 4.9 percent increase in 2014—down from the previous estimate of 5.8 percent, with next year’s projection holding at 8 percent.

“The institutional market has been a drag on the overall recovery for the design and construction industry for the last few years, and until we see state and local governments ramp up spending for new education, healthcare and public safety structures there likely won’t be a widespread acceleration in spending for the entire industry,” says, Dr. Kermit Baker, AIA’s chief economist. “But we continue to have an optimistic outlook for the commercial and industrial sectors both for the rest of this year and into 2015.”

The panel’s market segment consensus growth forecasts are as follows (sector: 2014 percent projection, 2015 percent projection):

  • Overall nonresidential building: 4.9, 8.0
  • Commercial/industrial: 9.9, 11.2
  • hotels: 14.5, 9.2
  • office buildings: 12.8, 13.3
  • industrial facilities: 7.6, 9.2
  • retail 7.4, 10.4; institutional: -0.1, 5.8
  • amusement/recreation: 3.7, 6.6
  • education: -0.1, 5.7
  • healthcare facilities: -1.8, 5.7
  • religious: -4.1, 0.7
  • public safety: -4.2, 3.3

Baker adds, “While there does not appear to be any structural frailties in the overall economy that could possibly derail increasing levels of construction spending over the next 18 months, lending standards at financial institutions continue to fall well short of the increasing demand for commercial real estate loans, which is another factor that serves as a wild card and a source of concern for the entire industry.”

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