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Overall, Baker said nonresidential spending will decline in the remainder of 2021 before recovering in 2022.
Annual predictions surrounding overall construction activity always include a mix of good and bad news. Perhaps the institutional segment is strong, while office construction is stagnant. Often, economists would point to the future, even a year or two out, and have some end in sight—a sign of hope. This year, when Kermit Baker, chief economist at The American Institute of Architects (AIA), offered his outlook to those attending the Window and Door Manufacturers Association Executive Management conference, there was no good news regarding labor shortages. “It’s a long-term problem with no clear solution in sight,” he said. If you’re an employer within glass or construction, you likely knew that already.
Baker pointed out that overall the stock market has been strong, and mortgage rates have been stable. That isn’t the case with inflation.
“Inflation has been steadily increasing, and we are at a place we haven’t see in decades,” he said. “Inflation is pushing up the cost of construction caused by supply chain disruptions.”
Baker recapped the Architecture Billings Index (ABI), which “dropped off very sharply after the pandemic at a rate we have never seen since its 25-year inception.” Thankfully, the ABI remained strong in August, and Baker said the speed at which it recovered is unprecedented.
“That suggests a very strong rebound in construction activity as we move forward,” said Baker. “This is reinforced by inquiries, and we are seeing backlogs at their highest in 10-12 years.”
He also pointed out that all sectors have a significant amount of work occurring on existing buildings. Overall, Baker said nonresidential spending will decline in the remainder of 2021 before recovering in 2022.
Delving into the office construction space, in particular, Baker had more questions than answers.
“Are we looking at a fundamental shift to office construction?” asked Baker. “I think you can add retail and hotel to that list. Is the long-term demand likely to be there?”
Without giving definitive answers, he said the rate of employees returning to offices has been disappointingly slow. “I don’t think the question is ‘Are offices going to reopen?’ The question is, ‘Will workers go back to them.’”
Still, if workers do go back, office space will have to be redesigned. Gone are the open layouts of the past given social distancing considerations, “So we will have to redesign the spaces we have,” said Baker.
While questions remain in that sector, the outlook for labor is more clear—and bleak. Baker said there are many reasons it’s so difficult to find labor. “There is a mismatch between where the workers live now and where the jobs are,” he said. “Some are nervous about returning to work. Some are rethinking their career path, and there have been a surge of retirements.”
While this issue is plaguing all industries, Baker said construction is hit particularly hard, again based on a variety of factors.
“We are much more reliant on immigrants,” said Baker. “And we have had difficulty attracting women into the trades, we continue to have difficulties attracting college-educated workers and workers are getting older. Unfortunately, it is not an attractive career path for younger workers.” All of these reasons may increase adoption of labor-saving technologies such as robotics, according to Baker, but he said more needs to be done.
“I don’t see good training programs developing, and I don’t see immigration issues improving. I think the only bright light is if there is a technology fix for this,” said Baker. “I think it’s a long-term problem with no clear solutions on the horizon.”
For Baker’s outlook on residential construction, click here.
