Nonresidential Construction Spending Expected to Slow Throughout 2023

Nonresidential construction will moderate in 2023 and slow significantly in 2024, the American Institute of Architects (AIA) reports.

AIA chief economist Kermit Baker says the U.S. economy will face mounting challenges in 2023 thanks to inflation, rising interest rates and weak consumer sentiment scores. Signs of a construction slowdown are already emerging, the AIA states. The Architecture Billings Index fell below the 50 threshold in the fourth quarter of last year, indicating a decline in billings nationally.

AIA chief economist Kermit Baker says the U.S. economy will face mounting challenges in 2023 thanks to inflation, rising interest rates and weak consumer sentiment scores.

The slowdown is expected to continue into 2024. The AIA predicts overall growth of less than 1% next year. Spending on commercial facilities is projected to decline by over 1%, and industrial construction should gain only about one-half of 1%.

“The U.S. economy will continue to face serious challenges as we move through 2023, dampening the construction outlook,” says Baker. “However, healthy architect and contractor project backlogs should ease the negative impact of an economic slowdown.”

The AIA reports that the commercial sector spending in 2023 will increase by 2.6%, industrial facilities will grow by 15.1%, and institutional buildings will rise by 4.1%. The AIA adds that spending on commercial buildings next year is forecast to decline by 1.4%, while industrial projects gain a modest 0.4% and institutional facilities increase by 3.8% increase.

Despite the concern, the AIA says that reconstruction work projects, such as renovations, retrofits, building additions and historic preservation, are steadily increasing. This is a result of rising interest in sustainability.

Architecture firms reported that in 2021, 62% of their revenue from commercial and industrial facilities came from reconstruction projects, up from 38% 15 years ago. Institutional work has seen a similar trend, with revenue from reconstruction projects rising to 61% from 38% 15 years ago. The residential sector is starting from a lower base, with remodeling work accounting for 40% of billings in 2021 from 26% 15 years ago.