Building construction market in 2023
Friday, February 10, 2023 from Floor Covering Weekly
Thursday, February 9, 2023
Regardless, concerns persist over the outlook for 2023. Will construction tank along with the rest of the economy? Construction forecasters think not, at least not until well into the year. Most projects underway as any potential slowdown hits are likely to continue to completion. The Associated Builders and Contractors reported that backlogs at contractors were averaging nine months in late 2022, giving contractors a bridge until later in the year. Likewise, architecture firms are sitting on elevated backlogs of around seven months.
Even with the possibility of a general construction slowdown later this year, there are a few construction sectors that should shine even if the market clouds up. One of these is manufacturing facilities. Spending on industrial facilities increased more than 30 percent last year, and another year of strong growth is projected for this year. Manufacturing gains have resulted in large part due to reshoring efforts by U.S. companies. The Reshoring Institute estimates that reshoring and other foreign direct investment in the U.S. produced 350,000 manufacturing positions in 2022, almost three times the average of the prior decade.
Another strong sector is distribution, which has seen the strongest growth of any major building sector over the past decade. Due to explosive growth in e-commerce, the construction of distribution facilities has increased by nine-fold over this period, compared to just over 50 percent in overall gains in spending on buildings.
A final bright light for the construction outlook is reconstruction activity. Over the past few decades, there has been a steady increase in the share of construction revenue from reconstruction projects — renovations, retrofits, building additions, and historic preservation. We’re seeing this increased growth in the reconstruction share across all major building categories. Architecture firms reported that in 2021 62 percent of their revenue from commercial and industrial facilities came from reconstruction projects, up from 38 percent 15 years ago. Institutional work has seen a similar trend, with revenue from reconstruction projects rising to 61 percent from 38 percent 15 years ago. It’s likely that the pandemic has provided a boost to reconstruction activity. If a soft economy, high inflation and high interest rates make more construction projects less feasible in the coming quarters, we can expect continued growth in the share of work coming from reconstruction projects, and a buffer against a more serious setback for the industry.