Dodge Forecasts 9% Rise in Construction Starts in 2015

After steady growth in 2014, the construction industry could see a strong uptick in construction starts in 2015, according to Dodge Data & Analytics. Dodge forecasts that the total value of construction starts could reach $612 billion next year—up 9% from 2014.

The residential, commercial and institutional sectors, in particular, are expected to boost activity.

Dodge estimates that 2014 will close out with $563.9 billion in starts—a 5% increase over 2013. That tally is well above the $550 billion total that Dodge initially forecast for the year.

Total construction starts have made solid gains since 2012, led by the residential sectors. However, a variety of other sectors are also contributing to total growth, says Robert Murray, vice president of economic affairs at Dodge Data & Analytics.

“You’re beginning to get more of a contribution from a number of sectors,” he said. “That makes this expansion more diversified and less vulnerable.”

Dodge announced its 2015 forecast during the Outlook Executive Conference in Washington, D.C., Nov. 6.

The residential sector continues to make strong gains, although at a more restrained pace. After a 26% jump in starts in 2013, the single family housing sector is expected to see only a 4% increase to $165.4 billion this year.

Next year, Murray says he expects lending for housing to improve, driving starts up 15% to $189.7 billion.

Multifamily housing has been consistently one of the strongest sectors coming out of the recession and is expected to tally $61.9 billion in starts this year—a 22% increase over 2013. However, Dodge forecasts that multifamily starts could rise at a more gradual rate of 9% in 2015, reaching $67.2 billion.

According to Murray, although the multifamily housing market might be maturing, the fundamentals remain strong for continued growth. The millennial generation, for example, is gradually moving to homeownership, driving continued demand for apartments in the near term, he said.

The commercial building sector continues at a steady pace of increased activity. Office buildings have seen a strong rebound with starts expected to rise 23% in 2014 to $27.1 billion. That trend could continue through 2015, increasing 19% to $32.3 billion.

“Office building has become the most important upward force for keeping the commercial construction market moving forward,” Murray said.

By comparison, the retail sector mirrored the flat single-family home market with only a 2% increase in starts this year to $17.1 billion. However, Murray forecasts that the improved housing market and a strengthening economy should boost store construction starts by 11% in 2015 to $18.9 billion.

After five years of a flat-to-down market, the institutional sector is expected to bounce back by 4% to $95.4 billion this year, followed by a 9% increase to $103.6 billion in 2015.

Murray notes that K-12 educational facility construction is contributing to the rebound, thanks to recent passage of school construction bond measures around the U.S. By comparison, construction starts in health care have been relatively weak, as many health-care systems have deferred capital plans due to uncertainty around the roll-out of the Affordable Care Act.

The manufacturing sector experienced a significant jump in starts in 2013 and 2014, rising 42% and 57% respectively. Murray says projects related to the booming oil and gas sector are largely responsible for the increase. Given the sudden spike in activity, Murray expects the sector to cool down a bit in 2015, dropping 16% to $24.4 billion.

Public works construction starts should finish the year down 9% to $113.4 billion, but will bounce back by 5% in 2015 to $118.8 billion, according to Dodge.

Murray expects to see an improved highway and bridge market, thanks in part to increased use of public-private partnerships and new financing mechanisms. Environmental public works could see modest gains, he says.

Demand for new starts in electric utilities remains well below the recent peak of $52.2 billion in 2012, tallying $22.5 billion in 2014.

Murray notes that a spike in large nuclear projects helped fuel that surge in activity. He says capacity utilization rates in the electrical power and generation market have dropped in recent years, which he expects will further soften demand. In light of that trend, Dodge forecasts the sector will drop another 9% in 2015 to $20.5 billion.

Source: ENR.com