Back to school. That’s the message in the institutional sector of the construction industry of late.
According to Robert Murray, chief economist of Dodge Data & Analytics, the education building category will lead the way next year as the institutional market picks up momentum thanks to an uptick in public funding.
Dodge’s 2016 Construction Outlook projects the dollar value of education starts will climb 10 percent next year following an 8-percent increase in 2015. On a square-footage basis, education construction starts rose 12 percent in 2014, flattened out this year with just a 2-percent increase and will jump 9 percent next year.
“Educational building starts are now strengthening after lengthy decline,” Murray said recently at the Dodge Outlook Conference in Washington, D.C. Education construction saw steep declines year-to-year from 2009-2013 until the recent rise.
Murray noted that several large bond measures were passed in the November 2012 elections in Texas, California, and New Jersey, among other states. Additionally, numerous school construction bond measures were passed in Texas in the November 2014 elections.
The increase in educational building reflects a growing volume of K-12 construction projects, as that sector is larger and more volatile than colleges and universities. Murray said in 2014, square-footage for K-12 school construction was 3.4 times the size of higher education (colleges/universities/community colleges). Dollars for K-12 school construction that year were 2.2 times the size.
Investment returns on college endowments increased 16 percent in fiscal year 2014, up from 12 percent in fiscal 2013, he said, adding that “major universities are now re-visiting deferred capital spending plans.”
Those factors have given the institutional market a lift, as other sub-sectors, such as healthcare facilities, haven’t gained much traction. “The healthcare facilities category continues to hover around 70 million square feet and has not yet been able to see renewed expansion in a sustained manner,” Murray said.
Debate over healthcare reform has created near-term ambiguity in the sector. Other factors affecting the market include uncertainty over reduced Medicare reimbursements, Affordable Care Act implementation and more healthcare mergers. The Supreme Court decision in favor of federal subsidies in states with exchanges set up by the federal government “eases some, but not all, uncertainty,” he said.
However, Dodge remains somewhat optimistic that the healthcare category will stabilize in the coming years.
“In the longer term, demographic demand from a growing elderly population and the need to replace aging facilities holds great promise for healthcare construction,” Dodge’s Outlook report reads. “When the fog from recent transitions finally clears, healthcare construction is likely to see stronger increases given the speed with which changes are happening in both the population and the healthcare industry itself.”
Meanwhile, the public buildings sector has experienced a lengthy decline and is expected to weaken for the eighth straight year in 2015. However, this category, which is affected by both public and private funding support, has been pushed along by the amusement and recreational sectors. Additionally, airport terminal work strengthened in 2014 and is expected to see more growth through this year.