The Construction Industry Is Bouncing Back from the Pandemic, But There Are Some Key Changes
While the effects of the COVID-19 pandemic are still being felt throughout the construction industry, there are key indications now that the nonresidential construction industry market is making a comeback. Key growth areas include healthcare, warehouse, and data center construction.
A Brief Retrospective
Before the country faced the pandemic back in 2019, initial predictions for 2020 anticipated a slow but steady 1.5 percent growth in nonresidential construction off of the $452 billion spent in 2019. However, the onset of the pandemic changed predictions among leading industry forecasters to a steep 11-percent decline.
The reality today is that as a whole, the construction industry saw an increase in total construction spending of 4.8 percent in 2020. This was driven by astronomical increases in residential builds (an increase of almost 12 percent), while nonresidential construction dropped by just 0.04 percent by the end of 2020 despite predictions.
Current Challenges Faced by the Non-Residential Construction Industry
By April 2020, the construction industry as a whole lost over 1.1 million jobs as a direct result of delays and by being deemed as non-essential work in some areas of the country. But according to the US Bureau of Labor Statistics, by September 2021 construction employment was only 201,000 employees below the peak of February 2020. This means that since the effects of the global pandemic hit the industry, more than 899,000 jobs have been recovered.
Half of the job gains from September alone were for nonresidential specialty trade contractors and if this trend continues into 2022 then the industry can expect to reach its pre-pandemic employment rate sometime in 2023.
The pandemic also significantly affected the Architectural Billings Index score from the American Institute of Architects. In February 2020, the ABI score was 53.4 indicating that the trend for architectural billings and construction spending was on the rise. A score over 50 indicates an increase, while a score under 50 indicates a decrease. The ABI score fell to its lowest point in April 2020 with a score of 29.5, however, it has quickly risen and was recorded in September 2021 at 56.6, a complete recovery from and improvement on the 2020 peak.
Moving Forward
According to the US Census Bureau’s September 2021 Monthly Construction Spending Report which was released on the first of November, private and public nonresidential construction has shown some mixed results compared with the previous month. Private nonresidential construction saw a drop of 0.6 percent compared with August, while highway construction saw a drop of 0.7 percent. Educational construction, however, saw an increase of 0.9 percent compared with the previous month.
Compared to the massive growth in residential construction, this data may not provide the most hopeful outlook for the near future in nonresidential construction. According to the third quarter construction outlook released by Dodge Data and Analytics, it could take the nonresidential construction industry up to 2 years before it completely recovers to its pre-pandemic status.
One of the key elements that could speed up this recovery is the government’s latest Infrastructure Bill. The Infrastructure Investment and Jobs Act passed on the 5th of November 2021 and pledges $550 billion in infrastructure spending over the coming five years. This bill will go on to boost non-residential construction and drive the industry towards full recovery by funding transportation and other infrastructure projects including water and power infrastructure.
Dodge Data and Analytics Chief Economist Richard Branch commented on the Infrastructure Bill that “our models are suggesting that thanks to the $550 billion infrastructure package, the total nonbuilding starts will increase by 34 percent from 2021 till the end of our forecast window in 2026. If we pull the $550 billion out, the total growth rate is 15 percent, which is a pretty weak rate of growth over a five-year period.”
2022: A Year for Recovery
According to the American Institute of Architects, 2022 is predicted to return to gains of around 3 percent for the overall building market with similar gains forecast for the commercial and institutional sectors as opposed to just the residential sector.
While office building, hotel, and amusement and recreation projects declined by nine percent, 20 percent, and 13 percent respectively since the onset of the pandemic, 2022 will see at least some of these losses offset. Hotel construction is expected to increase by approximately nine percent, while amusement and recreation construction will increase by around 11 percent. Healthcare and public safety have already grown past their 2020 and 2021 losses to produce gains and will continue to do so in 2022.
Although 2021 did not bring the key to solving the problems faced by the nonresidential construction industry, there are many good signs that the coming year will bring further recovery and growth. A prosperous residential construction market is often the harbinger for growth in the nonresidential market and the post-pandemic world will bring its own set of demands for businesses and organizations who need to make modifications which will help support the industry.
As the country moves further away from the pandemic, there is also likely going to be a surge caused by pent-up demand for nonresidential spaces as tourism will once again require additional lodging, recreation, and hospitality construction work.
Although the nonresidential construction industry is still in recovery mode, there is light at the end of the tunnel. That makes this the perfect time to begin planning out the next construction projects and getting to know the professionals who are still strong in an industry that will be building better and stronger now and into the future.
See our projects here and start thinking about what 2022 can bring.