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New Forecast: Construction Market Poised for Expansion

Construction activities are forecasted to grow at 6 percent through 2015, up from the previous forecast of 5 percent in Q2, according to the Q3 FMI Construction Outlook.

Construction growth is not only predicted to rise this year, but is also expected to climb to 7 percent, reaching $1.09 billion in 2016, the highest total since 2008, unadjusted for inflation. However, as construction gets busier, productivity improvement becomes more of a challenge.

“Improvements in productivity will be critical for achieving growth and sustaining margins in the years ahead,” said Chris Daum, president and senior managing director of FMI Capital Advisors, Inc. “We expect to see the use of new technologies and services expand, especially in highly competitive markets or where it has been difficult to find skilled workers.”

The Q3 FMI Construction Outlook forecasts growth for 17 sectors, across residential, non-residential and non-building groups. Manufacturing continues to be the fastest-growing construction sector this year at 18 percent, but other strong markets for 2015 include lodging, office, and amusement and recreation, all experiencing double-digit growth.

With an expected 8 percent drop this year, power construction is one sector that has cooled down in 2015. The power industry is in flux due to changing fuel supplies as well as variable rates of growth in alternative energy sources such as solar and wind.

Forecasts for some key sectors:

Manufacturing – Manufacturing is currently the fastest-growing construction sector at 18 percent for 2015. FMI expects that rate to slow in 2016 to just 5 percent. Continued low energy prices will hold down capacity growth in the oil and gas sector, but help spur expansion in other areas of manufacturing, extending the current boom in the petrochemical sector, in addition to other areas.

Lodging – Lodging construction continues a trend of rapid growth of 15 percent for 2015 and an expected rate of 12 percent for 2016 to $20.8 billion. The current pace is expected to slow to only 8 percent in 2017. Increased business travel and rising room rates are combining to bring this market back from overbuilt pre-recession levels.

Office – Construction has slowed since reaching 21 percent in 2014, but the current rate of 15 percent growth for 2015 continues to show that there is still steam in the office construction recovery. This growth is expected to carry over into 2016 and beyond, but at a slower rate. Continued growth in the technical sector and in larger metropolitan areas such as New York City will keep rents and absorption of new space high.

Residential – After three years of rapid growth, single-family and multifamily construction have cooled somewhat. Single-family construction is expected to end the year at 9 percent growth and multifamily is expected to realize 11 percent growth for 2015.

Power – After a strong year in 2014, power construction has slipped 8 percent in 2015 but is expected to regain 3 percent of that in 2016 to reach $96.7 billion. The power industry will continue to consolidate as the average consumer reduces power use, although demand will continue to grow due to population growth.