Consensus Construction Forecasts Calls for Gains to Continue Into 2024

A panel of leading economic forecasters is projecting that the strong nonresidential building momentum of 2023 will continue into 2024, led by the manufacturing sector which has skyrocketed more than 50 percent this year and looks to increase 5+ percent next year.

“The forecast for nonresidential construction activity remains healthy through the second half of 2023 and into 2024,” says the American Institute of Architects' (AIA) Chief Economist Kermit Baker, Ph.D., Hon. AIA. “The industry got off to an extremely strong start in the first half of the year, and that momentum will ensure healthy gains for the year before moving to a much more moderate pace of expansion in 2024.”

The AIA Consensus Construction Forecast was released in July 2023 with the AIA saying that the panel “has optimistic projections for nonresidential building spending in late 2023 and beyond.”

Leading the charge, according to the AIA, is the manufacturing sector, where spending is projected to increase more than 50 percent over last year’s exceptional performance. Healthy gains are expected across all sectors, including commercial, institutional, and industrial construction categories, with each projected to increase at a double-digit pace.

Manufacturing Sector Sets the Building Pace

The AIA noted that within the expected strong performance in building activity, there was an unusual amount of projected variability by the construction sector.

“Stronger future commercial/industrial categories are expected to include manufacturing, distribution, and hotels. On the institutional side, healthcare and education are expected to perform well,” says the AIA.

Among the highlights noted by AIA:

• The strong growth in spending on manufacturing facilities is largely attributed to the reshoring of production resulting from supply chain nightmares during the pandemic.
  
  
• Last year, a third of industrial construction was related to computer, electrical, and electronic equipment, while over a quarter was for chemical facilities.
  
  
• Growth in chemical manufacturing facilities is pegged to recent domestic oil and gas production expansion in the U.S. and the competitive advantage of producing plastics from these inputs domestically.
  
  
• Distribution facilities have helped generate growth in an otherwise weak retail sector with warehouses accounting for 58 percent of construction spending in the broader retail and other commercial categories.
  
  
• The Smith Travel Group reports that key metrics for the hotel industry have steadied and are beginning to improve. As a result, the AIA Consensus Forecast panel is projecting a 24 percent increase in construction spending on hotels this year, and an additional 7 percent in 2024.
  
  

Institutional Markets Stable Across the Construction Cycle

Unlike the red-hot manufacturing markets, the institutional construction sectors tend to be more stable across the construction cycle, with smaller losses during downturns and smaller gains during expansionary periods.

“Within this broader pattern, however, the two largest institutional building sectors have seen surprisingly strong growth so far in 2023. Through May, spending on healthcare facilities has increased almost 14 percent from year-ago levels, while spending on educational facilities is up over 6 percent,” noted the AIA.

Highlights include:

• The AIA Consensus Forecast Panel is projecting spending growth of more than 10 percent for healthcare facilities this year, and an additional 3 percent in 2024.
  
  
• ConstructConnect reports that the value of construction starts for junior high and high school facilities increased 20 percent through the first five months of this year, college and university facilities starts are up 14 percent, while preschool and elementary facilities increased 9 percent.
  
  
• While the pace of growth in this sector is expected to slow just a bit over the remainder of the year, the AIA Consensus Forecast panel expects spending in the educational construction sector to increase 10.5 percent for the year, and another 4.3 percent next year.
  
  

Consensus Construction Forecast: Behind the Numbers

Here are the raw numbers from the AIA Consensus Construction Forecast with the forecast percent change for 2023 and 2024:

• Nonresidential Total: 19.7 percent in 2023; 2.0 percent in 2024.
• Commercial Total: 11.2 percent in 2023; -1.7 percent in 2024.
• Office: 8.0 percent in 2023; -1.4 percent in 2024.
• Retail & Other Commercial: 10.8 percent in 2023; -2.8 percent in 2024.
• Hotel: 24.0 percent in 2023; 7.0 percent in 2024.
• Industrial Total: 55.1 percent in 2023; 5.4 percent in 2024.
• Institutional Total: 10.0 percent in 2023; 3.6 percent in 2024.
• Health: 10.4 percent in 2023; 3.0 percent in 2024.
• Education: 10.5 percent in 2023; 4.3 percent in 2024.
• Religious: 8.4 percent in 2023; 1.0 percent in 2024.
• Public Safety: 3.9 percent in 2023; 5.3 percent in 2024.
• Amusement & Recreation: 10.2 percent in 2023; 1.9 percent in 2024.

Breaking Down the Industrial Spending by Expert

The AIA Consensus Construction Forecast is an average of nine experts:

• Dodge Construction Network
• S&P Global, Market Intelligence
• Moody’s Analytics
• FMI
• ConstuctConnect
• Associated Builders and Contractors
• Wells Fargo Securities
• Markstein Advisors
• Piedmont Crescent Capital

Here is how each of the forecasters are calling nonresidential total, commercial total, industrial total, and institutional total spending increases (or decreases):

• Dodge Construction Network:

o   2023 change: nonresidential total 30.0 percent; commercial total 11.0 percent; industrial total 89.0 percent; institutional total 18.0 percent.

o   2024 change: nonresidential total 3.0 percent; commercial total (-4.0) percent; industrial total 6.0 percent; institutional total 8.0 percent.

• S&P Global, Market Intelligence:

o   2023 change: nonresidential total 17.3 percent; commercial total 13.8 percent; industrial total 41.9 percent; institutional total 10.1 percent.

o   2024 change: nonresidential total 2.8 percent; commercial total (-4.6) percent; industrial total 9.0 percent; institutional total 5.4 percent.

• Moody’s Analytics:

o   2023 change: nonresidential total 23.0 percent; commercial total 14.7 percent; industrial total 62.9 percent; institutional total 10.7 percent.

o   2024 change: nonresidential total 2.2 percent; commercial total 1.6 percent; industrial total 3.6 percent; institutional total 1.8 percent.

• FMI:

o   2023 change: nonresidential total 13.6 percent; commercial total 9.4 percent; industrial total 35.7 percent; institutional total 7.8 percent.

o   2024 change: nonresidential total 2.4 percent; commercial total (-1.8) percent; industrial total 8.0 percent; institutional total 5.2 percent.

• ConstructConnect:

o   2023 change: nonresidential total 13.5 percent; commercial total 6.4 percent; industrial total 38.0 percent; institutional total 7.8 percent.

o   2024 change: nonresidential total 1.9 percent; commercial total 3.2 percent; industrial total (-1.0) percent; institutional total 2.5 percent.

• Associated Builders and Contractors:

o   2023 change: nonresidential total 22.3 percent; commercial total 13.0 percent; industrial total 61.7 percent; institutional total 11.1 percent.

o   2024 change: nonresidential total 7.7 percent; commercial total 0.6 percent; industrial total 19.3 percent; institutional total 6.4 percent.

• Wells Fargo Securities:

o   2023 change: nonresidential total 13.9 percent; commercial total 8.4 percent; industrial total 40.0 percent; institutional total 5.8 percent.

o   2024 change: nonresidential total (-1.0) percent; commercial total (-4.4) percent; industrial total 5.5 percent; institutional total (-2.1) percent.

• Markstein Advisors:

o   2023 change: nonresidential total 23.0 percent; commercial total 11.6 percent; industrial total 67.7 percent; institutional total 11.0 percent.

o   2024 change: nonresidential total 3.6 percent; commercial total 0.6 percent; industrial total 6.0 percent; institutional total 5.0 percent.

• Piedmont Crescent Capital:

o   2023 change: nonresidential total 20.4 percent; commercial total 12.3 percent; industrial total 58.8 percent; institutional total 8.2 percent.

o   2024 change: nonresidential total (-4.7) percent; commercial total (-6.8) percent; industrial total (-7.7) percent; institutional total 0.3 percent.