The commercial construction market has rebounded faster in 2022, and more growth is expected in 2023. During the pandemic, all industries suffered a major setback, for only a select few, such as retail, industrial, and healthcare industries, to recover a year later. The broader commercial construction industry began to rebound in 2022, thanks to the rising demand due to shifting market trends.
Business owners looking to venture into commercial construction or those underway with projects must understand the current commercial construction outlook and what to expect in the long run. We have highlighted some key takeaways in the construction industry and the market indicators to watch.
Onshoring Pushing Demand for Industrial Space
Onshoring is the act of bringing manufacturing operations that had been moved overseas back to the country of origin. Due to the cost advantage, most U.S. companies have manufacturing plants in China and other Asian countries. Today, most companies are onshoring to minimize risks and better manage supply chain issues.
Pandemic lockdowns and shutdown of various industrial towns affected companies that relied on raw materials or processed goods from outside the United States. These manufacturers have learned their lesson and are now building manufacturing capabilities here in the US. This is driving massive demand for industrial development in various parts of the country.
The demand for industrial space is very high in high-population areas and those with high barriers to entry, such as the Northeast. Major areas experiencing rapid population growth, such as the Southwest and Southeast, also witness high demand for industrial development. This demand aspect makes a case for a positive commercial construction outlook in the short and medium term.
Residential Construction Leads the Way
In a normal economy, the construction cycle begins with residential projects before commercial and industrial projects kick in. In various parts of the country, several apartment buildings have either been completed or are underway in the development process. These housing units, especially the multi-family homes, generate demand for retail, office, and lodging spaces, just before the demand for schools, healthcare, and shopping centers sets in.
The sharp growth in residential home construction comes at a time when the interest rates are rising, and inflation is soaring near an all-time high. This is causing more people to rent and postpone their home-buying decisions. According to the latest research by Yardi Matrix, some parts of the country, such as the Midwest, are witnessing high construction rates, while cities like Dallas, Austin, and Houston are ranking in the top five list of regions with the highest number of new apartments.
Potential Challenges
So far, the commercial market outlook is promising, with residential and non-residential markets on an upward growth trajectory. Experts continue to predict healthy gains and significant progress in the construction market, despite a few obstacles such as labor shortages, supply chain issues, and material cost & availability.
While it’s best to stay optimistic, every investor, business owner, or project manager should be aware of the various market uncertainties. There are also concerns over a looming recession, and the rising interest rates are only making it costlier to set up commercial properties. Unless the Fed pivots and tames the rising inflation, the commercial construction market, like any other, will largely be affected by the macro markets.
Keeping Up with the Market Trends
As we anticipate a great year for the commercial construction sector, it’s wise to keep tabs on the broader markets while investing in areas that can enhance your competitive advantage. One of the critical areas to watch is the concept of connected construction, where contractors, architects, and other participants across the value chain utilize connected construction technologies to optimize operations and increase efficiency. Still, this should be executed with proper risk management in place.
Curious about what the latest news is in the commercial construction industry? Call us at 267-282-5076 at contact us online. We are happy to discuss industry trends or questions you have on your specific project.