Despite a teetering economy, commercial construction spending is expected to increase at a steady rate this year due to healthy architect and contractor backlogs, according to a new forecast from the American Institute of Architects via Commercial Property Executive.
Commercial Property Executive reported that gains are projected to be just under 6% and almost 3% for the commercial sector: 15.1% for industrial facilities and 3% for retail and other commercial properties, which includes commercial/retail, distribution, transportation and communication.
Good news for the near future, but the outlook for 2024 is less optimistic, with slowing spending expected across the board except for educational construction.
The AIA’s Consensus Construction Forecast panel, comprising leading economic forecasters, is projecting commercial construction to slow to under 1% in 2024. Commercial Property Executive reported that commercial spending will drop 1.4% across all sectors with spending cuts of nearly 3% in each, including industrial, which has been untouchable thus far.
Commercial construction spending did pick up toward the end of last year, with gains nearing 10% on an annual basis, and while increase in labor and material costs did play a big role in this boost, the AIA noted one method to see increased output is to look at construction unemployment levels. In 2022, commercial construction employment rose 4%, pointing to increased construction output, according to Commercial Property Executive.
Projects that began last year are expected to continue to completion, which is part of the panel’s optimism for construction spending to increase in most cases this year. Architecture firms are seeing backlogs averaging seven months, but the report noted backlogs can disappear if business conditions worsen and clients delay or cancel projects.
So, when exactly can a slowdown in construction spending be expected in 2024? The AIA Architecture Billings Index is pointing to Q3 or Q4, as the billings index fell below the 50-point threshold in Q4 2022 and lead time between design activity and construction activity is currently between nine and 12 months.
