CRE N Illinois

New development expected to slow down in 2020

New development expected to slow down in 2020,ph1

The economy is slowing, the labor pool is draining and the trade war is escalating. These are the primary reasons that new construction is expected to slow down in 2020.

According to the latest Construction Outlook from Dodge Data & Analytics, a mainstay in construction industry forecasting and business planning, the total U.S. construction starts will slip to $776 billion next year. That represents a decline of 4 percent from the 2019 estimated level of activity.

“The recovery in construction starts that began during 2010 in the aftermath of the Great Recession is coming to an end,” said Richard Branch, chief economist for Dodge Data & Analytics. “Easing economic growth driven by mounting trade tensions and lack of skilled labor will lead to a broad based, but orderly pullback in construction starts in 2020. After increasing 3 percent in 2018, construction starts dipped an estimated 1 percent in 2019 and will fall 4 percent in 2020.”

According to the report, the dollar value of commercial building starts will retreat 6 percent in 2020. The steepest declines will occur in commercial warehouses and hotels, while the decline in office construction will be cushioned by high-value data center construction. Retail activity will also fall in 2020, a continuation of a trend brought about by systemic changes in the industry.

The dollar value of manufacturing plant construction is predicted to slip 2 percent in 2020 following an estimated decline of 29 percent in 2019. Rising trade tensions has tilted this sector to the downside with recent data, both domestic and globally, suggesting the manufacturing sector is in contraction.

Multifamily vacancy rates have moved sideways over the past year, suggesting that slower economic growth will weigh on the market in 2020. Therefore, multifamily construction—an early leader in the recovery with eight straight years of growth since 2009—is slated to falter as construction starts drop 13 percent in dollars and 15 percent in units to 410,000 (Dodge basis).

Dodge expects institutional construction starts next year to essentially remain even with the 2019 level as the influence of public dollars adds stability to the outlook. Education building and health facility starts may even see modest growth next year, offset by declines in recreation and transportation buildings.

Public works construction starts will move 4 percent higher in 2020 with growth continuing across all project types. By and large, recent federal appropriations have kept funding for public works construction either steady or slightly higher—translating into continued growth in environmental and transportation infrastructure starts. Electric utilities and gas plants will drop 27 percent in 2020 following growth of 83 percent in 2019 as several large LNG export facilities and new wind projects broke ground.

The dollar value of single-family housing starts will be down 3 percent in 2020 and the number of units will also lose 5 percent to 765,000 (Dodge basis). Affordability issues and the tight supply of entry level homes have kept demand for homes muted and buyers on the sidelines.

“Next year, however, will not be a repeat of what the construction industry endured during the Great Recession,” said Branch. “Economic growth is slowing but is not anticipated to contract next year. Construction starts, therefore, will decline but the level of activity will remain close to recent highs.”