Spending on nonresidential buildings will see a minor 4% increase in 2024 despite a 20% increase in 2023, according to the AIA’s latest Consensus Construction Forecast. In 2025, meanwhile, the pace is expected to slow to just over 1% growth.
Across key sectors, manufacturing construction will see a 10% increase in 2024, while institutional construction will see mid-single-digit gains over the next two years. Spending on commercial construction is expected to be flat for the next two years.
The strong performance of manufacturing construction continues from 2023, where it accounted for almost 30% of overall spending on nonresidential buildings. Last year also saw spending on offices increase by 8%, while hotels increased by 21% and retail and other commercial facilities increased by 7%. Elsewhere, healthcare and education spending both rose by 13%.
Extract from the AIA's latest Consensus Construction Forecast. The interactive data is available to view here.In analyzing the strong performance of the manufacturing sector, AIA points to legislation including the CHIPS and Science Act which increased manufacturing spending on high-tech hubs and semiconductor manufacturing, and the Inflation Adjustment Act, which gave financial incentives for energy-efficient reconstruction.
Accounting for the expected slowdown of construction over the next two years, AIA points to rising long-term interest rates which have led to a tightening on construction lending. Higher construction input costs have also contributed to the slowdown, with input prices remaining 35% to 40% higher than pre-pandemic rates. Meanwhile, construction labor costs are continuing to rise at a 4% annual pace.
Elsewhere, a decline in commercial property values may also discourage construction, with AIA citing figures that office values have declined almost 15% over the past year, while apartments are down 12%.
Finally, AIA points to wider structural changes in the workplace as impacting construction trends. “While construction is a notoriously cyclical industry, some of the current trends affecting the office and retail sectors are more structural than cyclical,” AIA explains. “At present, about 30% of paid workdays nationally are worked remotely. Remote work seems to be stabilizing at around this level. Prior to the pandemic, the share of days working remotely was under 5%, underscoring the need of most companies for less office space.”
AIA’s analysis comes on the same week that US Census Bureau data found that residential construction activity declined in 2023. The latest AIA Architecture Billings index has also remained below 50 for the fourth consecutive month, according to the latest AIA figures.
According to Cresme, in 2021 the global construction market will reach the record level of €8,807 billion (+6,4% on 2020) and will continue to grow at an yearly rate of around 3% through to 2025.
The world construction market has been seeing a strong recovery in 2021, with growth reaching the record level of €8,807 billion (+6.4% on 2020), higher even than pre-pandemic figures. According to Cresme Ricerche, which presented its latest forecasts during the ACIMAC members’ meeting on 10 September, the growth trend is expected to continue strongly in 2022 (+3.5%) and then drop back to levels more in line with those of the last decade, fluctuating at around +3%.
“All the indicators are pointing to an expansion phase for the construction industry, which is the main driver of the current and future economic recovery,” said Antonio Mura, technical director of Cresme Ricerche and head of Simco, the information platform that monitors the scenarios in 150 countries (99% of the world’s GDP) on a quarterly basis and cross-references 160 different statistical sources to make five-year projections.
According to the survey, the monetary and fiscal stimuli introduced by national and international institutions and the huge amounts of savings accumulated by households during the lockdown year have already boosted the growth rates of construction investments, which are well above GDP trends in almost all world markets with the sole exceptions of Japan, Germany and the USA.
Taking a more detailed look at the figures for the global construction industry, Cresme notes that in 2021 the residential sector accounts for €3,209 billion, that is 36.4% of the total €8,807 billion, and is expected to grow by €200 billion by 2025. At a global level, non-residential construction accounts for 31% of the total (€2,651 billion) and public works the remaining €2,947 billion (33%),
In terms of macro-areas, Oceania is the region with the strongest projected recovery in construction output in 2021 (+7.6%, after -3.6% in 2020). This is followed by Asia, where Cresme forecasts an increase in investment of +7.4% (after -3.2% in 2020, with China and India as the key drivers), North America (+6.3%), South America and Africa with +5.7%. In Latin America, however, the growth rate is insufficient to make up the ground lost in the previous year, when construction fell by 13.5%. Trailing in last place is Europe with +4.1%, compensating for the 4.8% losses of 2020.
Extending the analysis to individual countries, China is leading the rankings. According to Cresme, the Chinese construction market is estimated at €2,730 billion in 2021 (30% of the global market) and is expected to grow at an annual rate of 3.1% through to 2025
Next come the US market (€1,241.1 billion; 14.1% of the total), which will grow by 1.5% per year, Japan and Germany, which account for 5.4% and 4.4% of total world construction respectively. Among the major world markets, Japan is the only case expected to see a 2.1% annual decline through to 2025, while Germany should remain stable at an average annual growth rate of 0.2%.
The Cresme forecasts for Italy, which ranks tenth in terms of construction market size (€186.2 billion and 2.1% of the world total), are for an average annual growth of 3.6%.
In this context, a macro-trend that is closely linked to the real estate sector, is sustainability, which in turn will drive demand for new, renewable, durable and insulating materials and above all will push western markets towards renovation of existing properties and away from investments in new buildings. Italy stands out for its record level of investments in renovation projects (driven by government incentives, especially the 110% Superbonus scheme), which are expected to account for 77% of all building investments this year compared to an average of around 50% in Europe as a whole and less than 9% in China.