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The economic future of the construction industry is shaping up to remain positive throughout 2015, however, there are plenty of ongoing challenges. Single family home construction is still lagging well below its historical highs, construction labor is a long way from being healthy, demographic changes and technological evolutions are causing shifts in the traditional mix of square footage investment, and public investment is still dragging.

On the positive side, multifamily residential and renovations remain on strong upward trajectories. The Panama Canal expansion continues fueling work at U.S. ports and theU.S. technology and energy extraction sectors stay busy supporting a wide variety of construction projects. There are many factors currently causing mixed effects on construction economics. Low interest rates help the buyers, but stifle investment on the sell side, and while lower energy prices encourage some aspects of construction, in other instances, they inhibit or curtail it.

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FACTORSOne factor affecting the growth of the GDP, according to Carrick, is the U.S. trade deficit. The rise in energy self-sufficiency is largely responsible for the trade deficit shrinking from the $700 billion range to $400 billion. As the trade deficit drops, GDP growth becomes stronger.

Single family home construction has only recovered about half of its pre-recession high and that it’s acting as a damper on economic growth.He notes, if single family construction were around 1.2 million units a year there would be another 600,000 to 700,000 construction jobs, not to mention the associated jobs created in other sectors such as real estate, legal services, and building products manufacturing. Meanwhile, however, multifamily construction has fully recovered.

The change in demographics is also affecting construction economics. The baby boom generation population will double on the way to 2050, potentially creating more need for renovation and retrofitting of existing homes. With people waiting longer to have children, the demand for school facilities will shift to the lower grades and interest in suburban living will be delayed until more families in their 30s start having children.“If single family

construction were around

1.2 million units a year there would be another 600,000 to 700,000 construction jobs.”

CONTINUING TRENDSThe economy’s strengths as energy extraction, the high-tech sector, activities at tidewater ports, and live/work mixed-use construction projects. He illustrated this by showing that 15 states with the lowest unemployment figures have strong ties to energy and technology. He also pointed out that no other country has as strong a presence in leading digital and big data companies as the U.S.

The live/work mixed-use construction phenomenon is driven by the young and the elderly. Carrick pointed out that both are attracted to the downtown lifestyle where they have easyaccess to shopping, dining, entertainment, and medical services. Carrick also discussed the alternatives investors now have to think about when it comes to square footage. For example, brick and mortar retail has given up square footage to online shopping. Single family residential has lost square footageto multifamily residential. Hotels and motels are now sharing economy epitomized by business models like Airbnb. Even colleges are rethinking their square footage because of the proliferation of low-cost online courses.

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Merger and acquisition activity in the engineering and construction sector are foretelling economic optimism for the construction industry as it shows companies continue to work on their long-term growth plans.

“The need to improve the quality of infrastructure and healthcare facilities for the aging population should continue to drive construction,” said H. Kent Goetjen, U.S. engineering and construction leader at PwC. “Lower oil prices will likely impact new facilities in the energy sector while providing reduced costs for some of the needed infrastructure work. We expect the urbanization trend will continue to drive demand for new construction and redevelopment of existing properties.

“The key will be adequate financing at both the public and private levels to support construction. At this point, the ongoing mergers and acquisitions activity suggests that companieswill continue to execute their long term growth plans while watching the impact of regulatory tightening on the U.S. economic activity.”

“ “The urbanization trend will continue to drive demand for new construction and redevelopment of existing properties.”

RESIDENTIALResidential construction would keep increasing in the coming years, but even by the end of 2019 it wouldn’t be back to its 2005 levels. Baker reported that a consensusaverage from eight sources predicted residential construction would grow 18% in 2015. That represents 1.18 million housing starts. Baker characterized the growth as healthy, but cautioned that it was still years away from returning to historical levels.

The home improvement market has had healthy recovery and by 2014 it was only 3% below its previous market peak. Baker predicted a continuing healthy trajectory for the sector with a potential new record high in 2015. This is due in large part to the rebound in home values, with homeowners being able to rebuild their equity, the low cost of credit for home equity lines, and pent-up demand left over from the downturn where distressed homes went through

foreclosure.

The multifamily sector was still the real strength in the housing market and would continue to be through2015. That’s because vacancy rates are at multi-year lows in most cities and people are showing a preference for urban living. He cautioned, however, that condos have been slower to revive than rentals and the government-subsidized sector is still weak. Simonson said the single family sector was stillstruggling against tight credit, buyers’ fears of being locked into a mortgage, and demographic shifts. Overall, Simonson said the residential market should increase at an annual rate between 1% and 10% from now through 2017.

OVERALL COMMERCIALBaker reported that the AIA Consensus Construction Forecast Panel thought commercial construction would grow in the double digits, almost to 12%. Simonson explained the retail dropoff has been offset somewhat by major warehouse construction projects as online retailers start pushing for same-day delivery. He projected growth in the commercial sector between 0% and 5%.

RETAIL/SHOPPINGCarrick recommended caution for the retail and shopping sector because of chain stores going out of business and others downsizing because of retail growth online.

HOTEL/MOTEL

Carrick predicted strong growth for the hotel and motel market as people feelmore confident and have more expendable

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income for travel and vacation. Simonson concurred saying he thought lodging would post gains of 10% or more in 2015.

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