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Commercial Property Construction Projected to Rise 17% in 2014

A leading indicator of future nonresidential construction spending hit a seven-month high in September, lending weight to construction forecasts calling for a greater-than-expected 17% boost in commercial construction next year.

The Architecture Billings Index (ABI) produced by the American Institue of Architects continued to accelerate in September, reaching its highest level since February and second-highest mark of the year.

Meanwhile, McGraw Hill Construction’s 2014 Dodge Construction Outlook projects that warehouse and hotel construction will again lead commercial building activity in 2014 as improving market fundamentals and more readily available construction and development lending should fund more commercial development activity next year.

The projected 17% gain in commercial construction for 2014 is a slightly faster clip than the 15% gain estimated for this year, although next year’s activity will still be 28% below the 2007 peak measured in terms of dollars.

“The bank lending environment is showing improvement in terms of both lending standards and the volume of loans and the improving fiscal posture of states and localities will help to offset some of the negative impact from decreased federal funding,” said Robert Murray, McGraw Hill Construction’s vice president of economic affairs.

The ABI, compiled monthly by the American Institute of Architects (AIA), reflects the lead time of about nine to 12 months between design firm billings and hard construction spending.

The September ABI score was 54.3, up from 53.8 in August, while the inquiry index for new projects was 58.6, down from the reading of 63 the previous month. The commercial / industrial sectored posted the strongest growth at 57.9, followed by multifamily residential, 55.6; mixed practice, 55.4 and institutional, 50.4.

McGraw Hill’s Dodge report predicts that total U.S. construction starts for 2014 will rise 9% to $555.3 billion, higher than the 5% increase to $508 billion previously estimated for 2013.

Multifamily housing, accounted for separately from commercial construction in McGraw Hill’s report, will rise 11% in dollars and 9% in units. Apartment and condominium percentage gains will be smaller than the previous four years, reflecting the completed recovery and maturing market.

Institutional building is projected to rise by a modest 2% after five years of decline, and should no longer serve as a drag on nonresidential building and total construction numbers. Health care construction is expected to remain flat given the continued industry emphasis on containing costs.

Source: CoStar Randyl Drummer October 30, 2013