Lodging, office buildings lead commercial building sector

Reed Construction Data’s U.S. chief economist Bernard Markstein answers one-on-one questions about the commercial building construction forecast.


Bernard Markstein, U.S. chief economist at Reed Construction Data, Norcross, Bernard Markstein, U.S. chief economist at Reed Construction Data, Norcross, Ga.
Ga., shares economic and construction insights with consulting engineers and business development directors. 

CSE: With regard to the Reed Construction Data December Expansion Index, define the portions of the commercial building sector that will grow in the next 12 to 18 months.

Markstein: The Reed Construction Data Expansion Index is not broken down by categories. However, I do use the Reed starts data that are used to generate the Expansion Index, along with other data, to formulate a forecast of many of these areas. Based on this forecast for the next 12 to 18 months:

  • Lodging will continue to be a strong area for both renovation and new Nonresidential construction spending will increase in both lodging and office buildings. Courtesy: Reed Construction Dataconstruction, with more emphasis on the latter.
  • Office construction will finally gain some traction; there will be more renovation to reduce energy costs, reduce water usage, improve air
    quality, and to allow more high technology in buildings; new buildings will focus on the same issues.
  • As residential construction expands, so will demand for retail construction—malls and strip malls; the big box store (except for places like Walmart and Costco) is largely dead, boutique stores and stores to meet daily needs (e.g., grocery stores) and personal services (e.g., hair care, restaurants) will be the order of the day.
  • Construction of health care facilities will slowly ramp up, but begin to pick up speed in the second half of the year and into 2015; suburban satellite operations will tend to dominate.
  • Virtually all the action Nonresidential construction spending will continue to rebound over the next couple of years. Courtesy: Reed Construction Datafor education construction will be for private facilities, largely for colleges and universities; little will occur on the public side for well over a year.
  • Multifamily construction will continue to grow, but at a slower rate; large projects will have retail space built into them, and in some cases, office space as well.

CSE: Which portion of the nonresidential building market will see the largest jump in the next 12 to 18 months? What building types?

Markstein: Lodging will once more lead the way with retail and office construction vying for second place.

Manufacturing will see a large rebound in construction spending in 2014 and 2015. Courtesy: Reed Construction Data

CSE: Looking farther ahead (2 to 5 years), in what types of buildings can mechanical, electrical, plumbing, and fire protection engineers expect to find morework?

Markstein: Health care, followed by education, will finally come into their own and move to the front for new construction.

CSE: With regard to the existing building market, what does the retrofit/renovation market look like in the next 12 to 18 months? How does this compare to the new construction market?

Markstein: As noted above, the retrofit/renovation market will continue to do to figure out how to repurpose empty big box stores. When public education construction picks up, the initial emphasis will be on retrofit/renovation. Overall, though, the emphasis will be shifting to new construction.well. That will especially be true for office space and for retail space as areas try

Educational facilities—colleges and universities and K-12 schools—will continue to see an uptick in 2014 and 2015. Courtesy: Reed Construction Data

CSE: Do you expect the market for new hospital buildings to grow in the next 12 to 18 months? What about stand-alone medical clinics or specialty buildings? How has the Affordable Care Act affected this?

Markstein: Yes and yes as noted above. The Affordable Care Act plays a key role in this as all areas of health care deal with both an influx of new patients due to greater insurance coverage and a change in the mix of demand for medical services.  

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