Commercial sector stalls, then rebounds, in 2016

July 10, 2017

July 3/10: Volume 32, Issue 2

By Reginald Tucker

 

Screen Shot 2017-07-10 at 2.44.33 PMThe U.S. non-residential construction industry finished strong in 2016, with key end-use segments posting some of the highest numbers since the market began to rebound in the spring of 2015. That’s according to newly released U.S. Department of Commerce figures that show non-residential construction spending reached a seasonally adjusted annual value of $430.1 billion in December, nearly the same as November 2016 but up 9.2% compared to December 2015.

With respect to private construction, most segments were up during the period, with the exception of lodging and education, where spending was down 4.4% and 2.1% in December, respectively. Meanwhile, office construction spending was up 2% with commercial and healthcare rising 0.7% and 1.2%, respectively, during the final month of the year.

The value of private construction in 2016 was $876.3 billion, a 6.4% increase over 2015. Total non-residential private construction reached $420.1 billion, a 7.8% uptick over 2015.

In terms of public non-residential construction spending, the picture was vastly different. Spending across virtually all categories was down, led by office (off 7%) followed by education (down 2.1%). Public commercial and healthcare construction spending fell 1.1% and 1.5%, respectively, during the month of December.

Looking at 2016 as a whole, the value of public construction was $286 billion, a tad below 2015’s $288.9 billion. Total educational construction spending in 2016 was $69.7 billion, a 4.7% increase over 2015.

Screen Shot 2017-07-10 at 2.44.59 PM“2016 was a chaotic year for non-residential building activity,” said Kermit Baker, chief economist for the American Institute of Architects (AIA), Washington, D.C. “For most serving this market, it turned out to be a successful year—construction spending in this sector rose almost 8%, according to current estimates—even as challenges to the industry were continually emerging.”

Anika Khan, senior economist with Wells Fargo, said lodging, office and amusement-related construction spending on the whole registered solid gains in 2016. She expects this trend to continue throughout 2017. “These outlays will likely advance as builders construct so-called ‘integrated’ resorts that include lodging, gaming and meeting spaces. Office activity is also expected to continue to post strong gains with the construction of large-scale projects. However, overall office operating fundamentals suggest some moderation in activity is in store.”

Experts believe rising construction costs will also play a role in slowing overall activity during 2017. “Costs have been muted in recent years, largely due to weak global demand and the strong dollar,” Khan stated. “However, the overall cost of materials and components for construction, including gypsum, ready-mix concrete and steel, is expected to see some upward pressure in 2017. Moreover, labor costs could also rise further as construction firms continue to report a shortage of skilled workers.”

 

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