While residential construction is experiencing a sustained boom, commercial construction is still lagging behind in its recovery. This does not detract from the sentiment of builders as confidence in the sector is on the rise, according to the latest Marcum Commercial Construction Index compiled by Marcum LLP’s national construction services group.
“The trust of the building contractors is finally increasing, almost two thirds of the building contractors expect business growth in the coming months,” says Joseph Natarelli, national construction manager at Marcum.
Anirban Basu, author of the report and chief construction economist at Marcum, agrees, adding: “Despite the malaise that has characterized a number of commercial property segments, contractor confidence has steadily increased in the first quarter of 2021. the contractors expect their sales to increase over the next six months, down from just 34% last year. From April 2021, only 19% of the contractors expect a decline in sales. ”
However, non-residential construction has not experienced the steady boom in residential construction. In fact, spending fell 7.4% from March 2020 to March 2021. Basu points out that the recovery of the non-residential sector could indeed be hampered by continued housing demand.
“The combination of growing demand for residential property and reduced inventory has led to a rise in property prices,” comments Basu. “While this is all excellent news for the housing industry, the increased demand for labor and raw materials has and will continue to thwart profitability in the more slowly recovering non-residential segments …”
Construction costs have risen sharply in recent months, with further inflation expected as the global economy continues to recover and the pent-up demand for goods and services grows – with corresponding additional pressure on the global supply chain.
ACBM employeesRising wage costs can also be expected. The construction industry has created 917,000 new jobs since May 2020, which corresponds to around 82% of the jobs in the first few months of the pandemic, emphasizes Marcum. The recovery in the commercial sector is still well below the peak, but it will increase staffing requirements and drive costs up further.
“The continuing shortage of labor and raw materials combined with higher material prices will continue to depress profits for the foreseeable future,” admits Natarelli. “On the plus side, our ailing industry is poised to benefit from a federal infrastructure plan designed to boost spending on transportation, affordable housing, water, public schools, and other sectors. Now that the pandemic conditions are lifting and the economy begins to open again, a new chapter for construction begins. We advise our customers to use this time to prepare. ”
Basu is more careful. “While the longer-term outlook for non-residential construction is positive, the current circumstances remain far from positive,” he says. “Despite the increasing confidence of building contractors, a broader economic recovery and the prospect of an extensive federal infrastructure package, the consistent indicators for non-residential construction remain subdued.”
Although Basu predicts the economy will expand rapidly as vaccination rates rise, he also warns that construction may not go entirely smoothly. “For example, the recent surge in inflation could cause policymakers to hold back major new stimulus packages for fear of the economy overheating further,” he notes. “That could move Washington, DC to reduce the size of the infrastructure package currently under consideration.”
Information from Marcum LLP and published by Becky Schultz.