2022 Construction Outlook: Continuing Growth But at Slower Pace
In the midst of a pandemic that has lasted far longer than I think many of us thought it would, it’s been a study in contrasts:
There has been over 305 million COVID-19 cases and 5.5 million deaths worldwide since the start of the pandemic.
The U.S. stock market gained a whopping 26.9% in 2021.
The annual rate of inflation in the U.S. hit 6.8% in November 2021 the highest it has been in nearly 40 years.
The U.S. unemployment rate stood at 4.2% at the end of 2021, down from 14.7% in April 2020, the second highest unemployment rate since the Great Depression.
The Doomsday Clock struck 100 seconds before midnight in 2021 as scientists warn that global leaders are doing too little too late to combat climate change that has seen global temperatures rise roughly 2 degrees Fahrenheit since the pre-industrial era.
2021 saw the launch of the first all-civilian spaceflight by Elon Musk’s Space X which was just one of 16 private spaceflights by tech billionaires Richard Branson’s Virgin Galactic and Jeff Bezos’ Blue Origin.
For the construction industry, when we started out in 2021, economists were estimating that construction starts would be up just 4% in 2021 after taking a 14% free-fall in 2020. As it turned out, construction starts increased 12% in 2021. That’s why economic forecasts should be viewed less like a marksmanship competition and more like horseshoes and hand grenades. Close is about the best you can realistically hope for.
So what are economists saying we should expect in 2022?
According Dodge Data & Analytics its 2022 Construction Industry Outlook, who, by the way, are some of the most respected folks out there, the construction industry should expect a 6% increase in construction starts in 2022 despite ongoing challenges with labor, supply chains and productivity.
According to Richard Branch, chief economists for Dodge Data & Analytics, while growth is expected to be modest at 6%, it still edges out the 5% increase in construction starts in 2019 before the pandemic began, and is anticipated to represent $946 billion in new construction spending. However, Branch noted that production delays, supply chain issues and labor shortages will continue to be challenges in 2022. While he noted that production delays and supply chain issues which caused material prices to spike in 2021 will “cool in 2022,” he noted that “this web is very tangled, and these issues will continue to exert downward pressure on construction starts as we move into 2022.” He also noted that labor shortages continue to be an issue, but also noted that this isn’t a new or entirely pandemic-related problem, comparing the 350,000 construction jobs currently open compared to the 400,000 construction job openings in 2019.
According to the 2022 Dodge Construction Outlook:
Single Family Residential: Much of the gain in 2021 was single family residential starts which increased 14% to over a million units. In 2022, this expected to cool to 3% with over 1.1 million units due to high material, labor and land prices, and supply shortages.
Multifamily Residential: Multifamily residential starts, like single family residential starts, were on a tear in 2021 with an increase of 16% to 648,000 units. This is expected to cool to 2% in 2022 with 659,000 units with a shift from urban high rises to smaller suburban projects in the $25 million to $50 million range.
Commercial Buildings: Commercial construction starts are expected to increase 12% in 2022 to $143 billion slowing from the 15% increase in starts in 2021 with a value of $128 billion.
Warehouses: Warehouses which broke records 2021 with a 36% increase in starts valued at $46 billion is expected to slow significantly but remain strong in 2022 with a 13% increase in starts valued at 52.8 billion. Amazon, of course, is leading the way with its massive distribution centers.
Streets, Highways and Bridges: Highways and bridges, which will start to receive funding from the Infrastructure Bill, are expected to increase 6% to $86 billion in 2021. This is up from 1% for bridges and a decline of 2% for streets and highways in 2021.
Institutional Buildings: Institutional building starts are expected to increase 6% in 2022 to $145 billion. This follows a 5% increase in 2021 with a value of $136 billion.
Retail: The shifting of the residential sector from urban cores to the suburbs will help retail construction which is expected to increase 14% in 2022 with a value of $15.5 billion. This follows a 10% increase in retail starts in 2021 with a value of $13.6 billion.
Hotels: Hotels were hit hard during the pandemic. While hotel starts are anticipated to increase 24% in 2022 with a value of $8.8 billion this follows declines of 18% in 2021 and 51% in 2020 and far off its high of $18.1 billion in construction starts in 2018.