Contractors should brace for weaker conditions: AIA

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Dive Brief

On the heels of “surprisingly strong” performance in 2023, a new report predicts that declining property values, tighter credit and higher input costs will hamstring growth this year and next.

Published Jan. 26, 2024

A construction worker welds rebar

Spending growth is expected to slow in 2024 and 2025, per AIA.

Panupong Piewkleng via Getty Images

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Dive Brief:

  • The American Institute of Architects warned this week that spending on nonresidential buildings will slow in 2024 and 2025
  • Spending on these types of buildings will see a 4% increase in 2024, much lower than last year’s 20% rise, and gains will slow to just over 1% in 2025, according to the AIA’s latest Consensus Construction Forecast.
  • Spending on commercial facilities will be flat this year and next, manufacturing construction will increase almost 10% this year before stabilizing in 2025 and institutional construction will see mid-single-digit gains this year and next, the report said.

Dive Insight:

The report blamed tighter credit, higher input prices, commercial property value declines and structural changes in construction demand for the predicted dip, and said that the slowdown is already underway.

The forecast preceded another depressed reading from the Architecture Billings Index, which uses the organization’s data to predict nonresidential construction activity between nine to 12 months down the road. The index currently sits at 45.4, below the median mark of 50 — anything below that means slowing activity..

Along with AIA, other economists have spotted indicators that a slowdown may still be looming. Associated Builders and Contractors economist Anirban Basu noted last week that despite three consecutive months of price moderation, geopolitical factors could still play a heavy hand in the economic environment.

“Piracy in the Red Sea and the resulting diversion of ships from the Suez Canal around the Cape of Good Hope has caused global freight rates to nearly double in the first two weeks of 2024, according to the Freightos Baltic Index,” said Basu. “All else equal, rising shipping costs will put upward pressure on certain inputs.”

Nevertheless, builders are seeing some relief on the ground — costs are dropping for road builders, and backlog grew in December.