Sept. 30, 2015

Commercial Construction Going Strong

“Commercial construction is outperforming most of the economy,” said Kenneth Simonson, chief economist for the Associated General Contractors of America, who offered an optimistic outlook for the nonresidential construction market in his remarks at the Metals Service Center Institute’s Forecast 2016 conference last month in Chicago. Simonson’s forecast for 2015-17 calls for growth of 6-10 percent. The market was up 9 percent through the first six months of 2015.

Driving the growth are several key factors. Expansion of the Panama Canal is having major positive effects in the United States, with ports around the country expanding their facilities to accommodate the larger ships that will be able to navigate the canal. Major dredging projects are under way at Atlantic and Gulf Coast ports, while infrastructure improvements are being made out West. The gains also extend hundreds of miles inland with the construction of storage, trucking and rail facilities, and through bridge, tunnel and highway improvements, Simonson said.

Another driver of nonresidential spending is the growing number of young Americans opting for urban lifestyles rather than houses in the suburbs. The move toward city living brings with it demand for multifamily housing, as well as the commercial construction that goes along with it, such as offices and retail space.

North America’s oil and gas industry continues to fuel construction, despite its obvious headwinds. Though some projects have been scuttled in response to falling petroleum prices, others remain in the works. There remains considerable downstream activity, such as petrochemical plants and export terminals, due to the longer lead times on many of the projects, Simonson said.

Sluggish public sector investment continues to weigh on nonresidential spending. Some states are authorizing new investment, but the federal government remains mostly on the sidelines. A divided Congress has funded road and bridge work—a source of great potential and undeniable need—with a series of temporary spending authorizations rather than a comprehensive highway bill, Simonson said.

Retail construction has not tracked with the residential gains due in part to the changing ways consumers shop. Greater use of online merchants has cut into traffic in malls and other brick and mortar stores. There has been a significant uptick in the construction of warehouses to accommodate the storage and shipping needs of the online retailers, but not enough to offset the losses, Simonson said.

Demand for office space has grown along with the nation’s workforce, though offices tend to be smaller as digitization has cut into the need for storage space, and more employees are working from home. Most of the investment is in urban areas, rather than the traditional suburban office complex.

One drag on commercial construction is the shortage of qualified employees to fill craft positions, such as carpenters and sheet metal workers, as well as professional positions such as project managers and estimators. Construction employment has grown by double digits since the recession, but has slowed to just 4 percent over the last 18 months. “There’s still plenty of demand for workers and projects,” he said. – By Dan Markham, Senior Editor
 

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Monday, October 23, 2017