The construction industry changes every year and while some of these changes are fairly small, others based on economic, environmental, or socioeconomic fluctuations have lasting effects on the industry. Experts agree, when trying to predict next year’s market, we have to look at the past to divine the future. Here are the top five industry trends and our predictions of what we see coming in 2023 and beyond.
1. Commercial Expenditures, Consumerism, and the Housing Market
According to CBRE Group Inc., there will be a 14 percent annual increase in U.S. construction costs by the end of 2022 thanks to industry labor shortages, inflation, supply chain disruptions, ongoing pandemic impacts, and the war in Ukraine1. Construction spending on commercial buildings specifically will increase 9 percent this year and are forecasted to increase another 6 percent in 20232. This outlook is more optimistic than previous projections largely because of the strong gains in manufacturing, surprising strength in retail, consumer spending on goods, and modifications to distribution processes. Supply chain problems and the growth of e-commerce over the past two years have encouraged manufacturers to re-shore a portion of their production while simultaneously increasing storage capacity at distribution facilities to better cope with future disruptions in materials.
While spending has improved, the outlook for the broader economy has significantly deteriorated. Among the more worrisome economic indicators are the decline of the stock market, consumer inflation, producer price increases, rising interest rates, decreased consumer sentiment, and the volatile housing market. Even though the U.S. housing and home improvement industries have been one of the few bright spots in the economy with increases of over 16 percent in 2021, sharp gains in house prices as well as increased mortgage rates, have dampened households’ willingness and ability to purchase a home. Since housing is traditionally a leading indicator of the economy, this emerging weakness is a concern for future growth.
2. Labor Shortages and the Workforce
The U.S. employment situation is at considerable odds with the growing list of negative economic indicators. The economy has added more than 20 million positions since the lows of the pandemic, and the national unemployment rate is well below 4 percent. Yet, businesses have many more positions to fill than there are candidates, leading to serious labor shortages. However, there is no shortage of theories offered for this scarcity of available workers. The most plausible explanation is that workers have been responding to the circumstances of the pandemic where there were unusually high levels of illness coupled with child-care and other family-care responsibilities that either pushed people into early retirement or prevented people from re-entering the labor force. This has impacted the construction industry as well as contractors are facing skilled labor shortages which push out construction schedules. This together with rising interest rates are now lowering commercial property values, thereby making new construction projects less profitable.
3. Design Demand and Market Focus
The American Institute of Architects’ Architecture Billing Index (ABI) points to further growth in the coming year. The ABI has been positive every month since February 2021 reflecting healthy revenue growth at architecture firms. New project work coming in as well as inquiries for future projects have been very strong, indicating design revenue at architecture firms will continue to grow. Since the ABI has been shown to lead construction spending activity, the building construction market is projected to see these gains well into 2023. The AIA Consensus Forecast Panel is projecting a 9.1 percent increase in spending for commercial buildings this year, and an additional 6.0 percent in 2023.
The commercial construction market consists of several sectors. There has been strong growth in retail markets as discussed earlier. Modest gains occurring in the office sector are expected to accelerate slightly in 2023, and the hard-hit hotel sector is finally projected to recover next year. While the industrial market is expected to have an upturn in 2023, the institutional sector began its recovery this year and will accelerate into next year. Construction spending in the healthcare sector never declined during the pandemic, and this strength is projected to continue with 5 to 6 percent gains both this year and next. The education market suffered from remote learning so renovating older buildings and building new facilities was not a budget priority. This sector is only projected to gain 2 percent this year and an additional 5 percent in 2023. Finally, there is a small pent-up demand for amusement and recreation facilities as these activities begin to return to normal and delayed projects come back to the surface3.
4. Energy Efficiency and Green Buildings
In 2013, green buildings accounted for only 8 percent of total construction spending. In 2022 green buildings will account for 47 percent of firms new construction projects. By 2025, it is predicted that over 60 percent of all new buildings could be labeled net-zero ready—or capable of being built with zero carbon emissions. Interesting statistics since the U.S. green building market is estimated at over $81 billion4. What all this means is that we predict that green buildings will be ubiquitous in the future. So, what qualifies a building as green? The components of a green building are energy efficiency and renewable energy, water efficiency, environmentally preferable building materials and specifications, reductions of waste, toxin reductions, protection of indoor air quality, and smart growth and development.
Energy efficiency is a large component of green building design. Did you know that over 35 percent of the energy used for heating and cooling is wasted? Practical solutions can help retain energy and ensure efficient building construction and renovations. Insulation materials are among the few industrially manufactured products that actually save more energy in the course of their lives than is required for their manufacture. Armacell’s current Life Cycle Assessment (LCA) established that 140 times more energy is saved through the use of ArmaFlex® products than is needed for their production, transport, and disposal. Our thermal insulation can improve energy efficiency, control condensation, manage thermal performance, and provide cost savings on HVAC, plumbing, and refrigeration applications in buildings. Our products have also long supported better indoor air quality and can contribute to many green building standards, including the U.S. Green Building Council’s Leadership in Energy and Environmental Design (LEED®). Furthermore, ArmaFlex saves 150 times more greenhouse gas emissions than are caused by its production. Additionally, many of our products are GREENGUARD Gold certified, UL’s most stringent emissions certification. These innovations all contribute to energy efficiency and environmental protection in green building design now and into the future.
In addition, recent legislation updates are now offering tax incentives for commercial building that invest in energy efficiency. Eligible government buildings, non-profits, schools, and houses of worship applicants that upgrade systems to achieve an overall 25% energy improvement can save more on energy and taxes when they take advantage of the new 179D Commercial Buildings Energy-Efficiency Tax Deduction in 2023. Making sure to properly insulate any new HVAC systems with ArmaFlex is an easy way to help save energy and tax money.
5. Increased Digitization and Automation
The construction industry has a long history of using technology. From measuring tools to surveying equipment, construction workers rely on tech more than ever. Digitization will continue its progression within construction and by 2023, even more tasks will be automated as AI and robotics make a greater impact on design, safety, and efficiency.
We’re already seeing an increasing level of automation through digital technologies such as drones, 3D printing, and nanotechnology. These new innovations have enormous potential to improve safety, efficiency, communication, and overall productivity across the industry. Another digital innovation is how virtual reality (VR) is making a difference. As VR technology becomes cheaper and more accessible, it’s likely that most big-name builders will have VR systems integrated into their training programs, design tools, and safety testing that could speed up construction projects.
Smart technology is also becoming an expectation, not a luxury for business and homeowners. This trend will continue to grow in 2023 and has expanded past smart thermostats like Ecobee and Nest, the latter claiming that U.S. customers can save an average of 10 percent on heating and cooling bills. Now consumers are moving towards integrated systems using Google Home or Amazon Alexa in conjunction with smart appliances and AI. These systems along with the Internet of Things will have expansive growth particularly in smart kitchens and bathroom spaces.
Challenges to the economy and adverse construction industry trends aside, the outlook for the nonresidential building market appears promising for the rest of this year and next. For additional information or help with future projects, please reach out to our technical experts or sales team.