The Southern region has seen an influx of residents in the past two years and many states are on the road to recovering from the impacts of the COVID-19 pandemic. However, labor shortages continue to plague much of the region and could continue to affect recovery in the months to come. Still, experts say the nonresidential outlook for 2022 is promising.
Sarah Martin, senior economist at Dodge Construction Network, provided a southern region construction overview as part of the Dodge Construction Network 2022 Mid-Year Outlook held virtually on Thursday, May 26. She says while people are leaving the Northeast and Midwest, the South has experienced an influx of residents in recent years. According to Martin, the South added 500,000 people from 2019 to 2020, and another 660,000 from 2020 to 2021.
“Alongside the influx of people, some economies in the south have more readily recovered with housing demand and higher consumer activity,” Martin says.
Arkansas, which is approximately 97% recovered, is one of the states that could benefit from the housing market as it is home to a large lumber and wood market. Martin says Georgia, or Atlanta specifically, is also experiencing a robust housing market.
Texas is close to its pre-pandemic economic levels and is benefiting from an influx in not only residents but also large companies such as Tesla and Oracle. The state could also benefit from the U.S. placing more focus on domestic oil production with the war in Ukraine. South Carolina, Florida, Georgia, North Carolina and Tennessee all saw jobs return to pre-pandemic levels in the April jobs report.
But even with an increase in population, some southern states continue to struggle with labor shortages. Alabama and Kentucky are seeing slower recoveries due to labor shortages, with Virginia, Maryland and West Virginia experiencing similar trends. Attrition rates are also on the rise in those states. South Carolina, for example, is seeing population increases, but those new residents are retired or of retirement age and not entering or staying in the workforce.
Martin also addressed construction costs in five major southern metropolitan areas that included Atlanta, Baltimore, Birmingham, Dallas and New Orleans.
“Atlanta’s construction cost growth is almost double that of the U.S. average, remaining 16% above cost in April 2021,” Martin says. “Conversely, Dallas and New Orleans are showing an acceleration in cost, up a whopping 19% in Dallas and 17% in New Orleans from last year. These trends are being strongly influenced by housing market trends.”
Martin says Baltimore and Birmingham are dealing with higher inflation but are not experiencing the same pricing pressures as cities such as Dallas and New Orleans. Solid growth is also forecast for Florida as retirees and remote workers migrate to the state. However, Martin says that has still caused a shortage of workers and upward pressure on home prices, leading to Florida ranking “rather high” with respect to the probability of a recession within the next year. Still, Martin says the state’s outlook is promising for the year to come.
“We could see slower than projected growth across the South this year, especially as the rate of recession increases,” Martin says. “But on the upside, we are forecasting U.S. GDP to rise 3.5% in 2022, meaning Delaware, Texas, Florida and Oklahoma will have above average growth this year.”
Martin also noted there were many large projects in the south in the back half of 2021 centered on manufacturing. She said that trend may continue into 2022 as the sector is forecast to expand 3% in value, but negative 15% when accounting for inflation.
Nonresidential building starts as a whole for 2022 are expected to experience broad-based growth. Commercial starts are forecast to stay at around 14% growth, or 4% when adjusted for inflation. Warehouse starts improved 31% in 2021 and Martin says that growth will recede some in 2022 while still remaining well above 2021 levels.
The office sector, Martin says, should advance approximately 9%, or 1% when adjusted for inflation, in 2022. The 2022 forecast for the institutional sector is dominated by education and health care starts, which are expected to rise 13% in 2022, or 5% when adjusted for inflation.