Spending on nonresidential construction is projected to increase over the remainder of the year before taking a step back in 2025, according to the AIA’s updated Consensus Construction Forecast for mid-2024.

The report says construction of new commercial facilities effectively will remain flat this year and next, while manufacturing construction will see increases of 14% this year before stabilizing in 2025. The Institutional sector is projected to see a more than 10% gain this year before slowing to 4% in 2025, according to the data.

Put together, these three "niche" sectors now represent 40% of the market for nonresidential buildings. This is a substantial increase from before the pandemic, as in 2019 they accounted for fewer than 23% of the same total. "As a result," the AIA says "sectors that typically have a different design focus, materials composition, and contractor specialization now account for much of the gain that the industry has seen recently." This status means certain entities have benefited from the strong growth in these sectors, while other players have been passed over or excluded. 

In terms of its outlook, the report prognosticated "at best for very modest growth" if not more than likely declines for all sectors excluding the niche market for data centers and manufacturing moving forward. Commercial markets are expected to see almost no growth over the remainder of this year and next. The overall institutional sector is projected to increase by 11% this year before shrinking to a net 4% increase in 2025.

"One final consideration that will impact the construction outlook moving forward is the growing importance of reconstruction activity as a share of overall construction spending," the AIA notes in addition to citing the importance of several demographic variables such as the under-25 population and flow of immigration. 

"Surveys conducted by the AIA have discovered that about 50% of billings at architecture firms come from work on existing buildings, including additions to existing facilities," they continued. "The current economic environment of declining values of existing buildings coupled with the elevated cost of building new facilities often tilts the scales toward reconstruction over new construction. The expectation is that the reconstruction share of total construction activity will continue to increase in the years ahead."

The forecast coincides with other economic analyses of the building sector recently reported in our editorial. The June Dodge Momentum Index (DMI) was up 10.4% from the month of May. The most recently reported Architecture Billing Index (ABI) reached a new post-pandemic low, while finally the total value of construction starts was recorded at $1.24 trillion in May.