A recent forecast from McGraw Hill Construction, a division of New York-based McGraw Hill Financial, predicts that total U.S. construction starts next year will rise 9 percent to $555.3 billion. That is up from the 5 percent increase estimated for 2013.
Despite uncertainty and federal spending cutbacks, McGraw Hill expects steady job growth, low interest rates and an improving lending environment to benefit the construction industry.
McGraw Hill is projecting the following:
• Single-family housing: 26 percent growth in dollars, corresponding to a 24 percent increase in units to 785,000. This growth is attributed to the pace of foreclosures easing, home prices rising and mortgage rates remaining low. Demand for housing will be restrained by tighter lending practices.
• Multifamily: 11 percent increase in dollars and 9 percent bump in units. This reflects a maturing multifamily market that has grown a lot over the last few years. High-rise development should remain attractive to real estate investors with an eye on major cities.
• Commercial building: 17 percent increase with warehouses and hotels expected to lead the way. Retail and office buildings will pick up the pace. More bank lending for commercial development will help the market.
• Institutional: 2 percent increase after five years of decline. Colleges are revisiting capital expansion plans and recent bond measures in several states should help K-12 projects. Health care construction should remain flat, given continued emphasis on cost containment.
• Public works: 5 percent decrease after a 3 percent gain that was lifted by the start of several large highway and bridge projects. Continued focus on deficit reduction will limit federal support.
• Electric utility: 33 percent decline, due to sharp declines in capacity utilization, which limits near-term need for new generating capacity. The need for transmission line work remains strong.
The American Institute of Architects Consensus Construction Forecast Panel, in July, forecast a 7.6 percent increase in nonresidential construction spending for 2014.
The panel is conducted twice a year with the leading nonresidential construction forecasters, including McGraw Hill Construction, IHS-Global Insight, Moody's Economy.com, FMI, Reed Construction Data, Associated Builders & Contractors and Wells Fargo Securities.
The July report projected an 11.5 percent spending increase in commercial construction, 6.3 percent in industrial and 5.6 percent in institutional construction.