Nonresidential Construction to Decline, AIA Report Says

Spending on nonresidential building, having already fallen over the last few months, is projected to decline through at least part of 2021, according to a new forecast from the American Institute of Architects.
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The decrease in commercial construction spending that began this past spring is likely to continue well into 2021, according to the midyear update to the American Institute of Architects’ Consensus Construction Forecast.


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Among all nonresidential sectors, the commercial building sector—consisting of office, retail and hotel properties—is expected to be the hardest hit, with spending projected to decline almost 12 percent this year and a further 8 percent in 2021, according to the forecast.

Moderate declines in some sectors

In somewhat of a contrast, the industrial sector—comprising manufacturing and distribution facilities—is forecast to experience more modest declines of 5 percent this year and 3 percent in 2021. Institutional buildings overall—including health-care and education projects—are expected to see the most moderate declines of almost 5 percent this year and another 2 percent next year.

Kermit Baker, Chief Economist, American Institute of Architects. Image courtesy of American Institute of Architects

The pandemic is, of course, the trigger for all this, and the forecast discusses numerous unknowns that could either shorten or lengthen the construction decline. These include the earlier-than-expected arrival of a vaccine, additional federal stimulus spending, and continuing difficulties in industries, such as restaurants and airlines, that could be forced to operate at greatly reduced capacities for extended periods.

Retail

Sectors that were facing other problems before the advent of COVID-19 include retail, which has been hammered by online shopping for years now. “Spending on retail facilities is expected to continue its 2019 weakness,” the AIA forecast says, declining 8 percent this year and 7 percent in 2021.

Hospitality

Another sector that was already challenged is hospitality, which has been devastated by limited personal and business travel, and the near elimination of conventions and trade shows. “While competition from Airbnb and other online sources was already limiting the need for new hotels, the pandemic has accelerated this weakness,” notes AIA.  Hotel construction is expected to be the weakest of any major nonresidential sector, with declines of more than 20 percent this year and another almost 17 percent next year.

Office

But previously healthier sectors will also see construction spending fall. “The dramatic downturn in office employment will limit the need for new facilities,” predicts the AIA. “Additionally … many businesses have found telecommuting to be an attractive option, and many workers feel safer at home, particularly those relying on public transportation for their work commute.” Spending on office construction is expected to fall 11 percent this year and almost 8 percent in 2021.

Health Care

Finally, the AIA expects health care to be one of the few sectors to dodge a recession this cycle. “Even though elective health treatments have fallen off in recent months, demographics remain very positive for health-care spending moving forward. One wild card is the long-term trend toward telemedicine, and whether that will continue to be a popular alternative to in-person care.” The AIA sees health-care spending as increasing more than 2 percent this year and another 3 percent next.

Read the full report on AIA’s website.