After a -14% decline in total construction this year to $770.5 billion, Dodge Data & Analytics sees a +4% increase next year. During the 2021 Dodge Construction Outlook presentation held Nov. 10, which was for the first time ever a virtual event, Richard Branch, chief economist for Dodge Data & Analytics, gave a measured outlook for 2021.
“The COVID-19 pandemic and recession have had a profound impact on the U.S. economy, leading to a deep drop off in construction starts in the first half of 2020,” he said in a press statement released after the conference. “While the recovery is underway, the road to full recovery will be long and fraught with potential potholes. After losing an estimated -14% in 2020 to $738 billion, total construction starts will regain just +4% in 2021.
“Uncertainty surrounding the next wave of COVID-19 infections in the fall and winter and delayed fiscal stimulus will lead to a slow and jagged recovery in 2021,” Branch said. “Business and consumer confidence will improve over the year, as further stimulus comes in early 2021 and a vaccine is approved and becomes more widely distributed. But construction markets have been deeply scarred and will take considerable time to fully recover. Only the residential sector will exceed its 2019 level of starts thanks to historically low mortgage rates that boost single family housing.”
Branch offered the following forecasts for key market segments:
Single-family construction. The dollar value of single-family housing starts will be up +7% in 2021 and the number of units will grow +6% to 928,000 (Dodge basis). Historically low mortgage rates and a preference for less dense living during the pandemic are clearly overpowering short-term labor market and economic concerns.
Multi-family construction. This market segment “will pay the price for single family’s gain,” he said in the press release. “The large overhang of high-end construction in large metro areas combined with declining rents will lead to a further pullback in 2021. Dollar value will drop -1% while the number of units started falls -2% to 484,000 (Dodge basis),” he said.
Commercial building. The dollar value of commercial building starts will increase +5% in 2021. “Warehouse construction will be the clear winner as e-commerce giants continue to build out their logistics infrastructure,” Branch said. “Office starts will also increase due to rising demand for data centers (included in the office category) as well as renovations to existing space. Retail and hotel activity will languish.”
Institutional construction. In 2021, institutional construction starts will increase by +1% as growing state and local budget deficits impact public building construction. Education construction is expected to see further declines in 2021, while healthcare starts are predicted to rise as hospitals seek to improve in-patient bed counts.
Industrial construction. The dollar value of manufacturing plant construction will remain flat in 2021. Declining petrochemical construction and weak domestic and global activity will dampen starts, Branch said, although he expects a small handful of project groundbreakings will level out the year.
Public works. Branch said this segment of the construction market will see little improvement as 2021 begins due to continued uncertainty surrounding additional federal aid for state and local areas, and he expects public works construction starts will be flat next year.
LNG export and renewables. Dodge Data & Analytics forecasts that electric utilities/gas plants will gain +35% in 2021, led by expected groundbreakings for several large LNG export facilities and an increasing number of wind farms.
