Spending on nonresidential buildings will see a modest 4% increase in 2024, after increasing by more than 20% last year, according to the latest Consensus Construction Forecast by the American Institute of Architects.
The pace will slow to just over 1% growth in 2025, a marked difference from the strong performance in 2023. Spending on commercial facilities will be flat this year and next, manufacturing construction will increase almost 10% this year before stabilizing in 2025, and institutional construction will see mid-single-digit gains this year and next.
Factors of the slowdown
The Consensus Construction Forecast panelists, a group comprised of the leading construction forecasters from across the country, found there are many factors fueling the projected slowdown:
- Tighter credit conditions continue to put pressure on many regional banks that account for a sizeable share of construction lending.
- Higher construction input costs due to inflation in materials costs and labor in recent years.
- Declines in commercial property values as weak demand continues in many sectors.
- Structural changes in demand, disrupting notoriously cyclical construction industry.
What AIA says
"There are several economic headwinds behind the projected slowdown," says AIA Chief Economist Kermit Baker. "We already started to see construction starts either slow dramatically or turn negative in virtually all construction sectors in the latter part of 2023 and the weaker conditions are expected to stay into 2025."
