July 19, 2023
2023 Construction Pace Robust, but Expected to Slow in 2024
We are possibly in the midst of record construction spending, but will inflation undermine the boom?
Each year, the American Institute of Architects (AIA) collects data from leading construction economists’ forecasts to create a forward looking 6-18 month construction forecast. The forecasts are collected from the following:
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Dodge Construction Network
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S&P Global
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Market Intelligence
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Moody’s Analytics
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FMI
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ConstructConnect
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Associated Builders and Contractors
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Wells Fargo Securities
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Markstein Advisors
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Piedmont Crescent Capital
The just released-data shows that the AIA Consensus Construction Forecast panel predicts a 20% increase in nonresidential building spending this year, a surge not witnessed since pre-Great Recession boom times. However, while significant spending increases are anticipated across sectors—including manufacturing, commercial, institutional, and industrial—real gains may be offset by inflation, tempering economic growth and job opportunities.
Consensus Construction Forecast
Source: AIA
| % Change | ||
| 2023 | 2024 | |
| NONRESIDENTIAL TOTAL | 19.7 | 2.0 |
| Commercial Total | 11.2 | -1.7 |
| Office | 8.0 | -1.4 |
| Retail & Other Commercial | 10.8 | -2.8 |
| Hotel | 24.0 | 7.0 |
| Industrial Total | 55.1 | 5.4 |
| Institutional Total | 10.0 | 3.6 |
| Health | 10.4 | 3.0 |
| Education | 10.5 | 4.3 |
| Religious | 8.4 | 1.0 |
| Public Safety | 3.9 | 5.3 |
| Amusement & Recreation | 10.2 | 1.9 |
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The Industrial category is expected to see a significant increase of 55.1% in 2023, a surge significantly higher than any other category. However, this growth is expected to slow to 5.4% in 2024, marking a substantial decline.
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The Hotel category also predicts robust growth, with an increase of 24% forecasted for 2023 and a continued, albeit reduced, growth of 7% for 2024. This sector shows the highest resilience among categories expecting a slowdown in 2024.
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On the other hand, the “Retail & Other Commercial” category will experience a downturn from an 10.8% increase in 2023 to a 2.8% decrease in 2024, suggesting a challenging year ahead for this sector.
The AIA Consensus Construction Forecast panel has optimistic projections for nonresidential building spending in late 2023 and beyond, and the news is generally positive – with a caveat. The panel—comprised of leading economic forecasters—is projecting that spending on buildings will increase by 20% this year—a torrid pace not seen since the construction boom years leading up to the Great Recession.
“The forecast for nonresidential construction activity remains healthy through the second half of 2023 and into 2024,” says AIA Chief Economist Kermit Baker, PhD, 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.”
Leading the charge is the manufacturing sector, where spending is projected to increase more than 50% 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.
Though spending on nonresidential buildings increased by more than 10% last year, once inflation is factored in, real increases were much lower. This means that while companies are investing heavily in new buildings and renovations this year, their investments may not translate into comparable economic growth or employment opportunities. However, with inflation in construction moderating, there is optimism among industry professionals about what lies ahead for nonresidential building projects this year and beyond.
