Commercial Construction Forecast for 2016 Looks Extremely Upbeat

If you are a builder you should start 2016 with a smile on your face because the commercial construction forecast for 2016 looks very, very strong.

After reviewing several articles on the commercial outlook for the year, here is what we consider to be a general consensus:

- Dodge Data and Analytics say US construction starts for this year will grow by 6% to $712 billion. That's fantastic news. You could essentially stop reading right there.

More buildings creates demand for more commercial site furnishings

- Commercial building is expected to grow by more than 11%, compared to 4% last year. Dodge predicts office construction will be very active, with starts as high as 17%, primarily from demand by tech and finance clients. For example, Apple just started a 2.8 million sq. ft. project for their new headquarters. When you sell a ton of products such as iPhones or iPads, then you've got money to build a behemoth like that.

- Institutional construction, schools for example, will grow 9%, says Dodge. Many schools need renovations and with a favorable economic forecast overall, it appears officials will be opening the gates on a bunch of K-12 projects. Plus, these better economic times helped many bond issues allocating funds for those projects to be passed.

Another bright spot is that universities are competing harder than ever to recruit students. Many colleges will spend money to upgrade their facilities to be more attractive. Another area where colleges want to capture more revenue is to build more dorms. Some experts anticipate that college residence construction will grow 7%.

- As far as retail, deep discounters are doing well and planning to expand. You will see more stores like TJ Maxx and Marshalls but also major stores growing out their discount alternatives such as Nordstrom Rack or Macy's Backstage. Dodge sees a 9% increase in retail and shopping center construction.

- Speaking of retail, as everyone knows, online retail is booming. Guess what? Those e-commerce companies need warehouses to stockpile those millions of products. Also, to keep up with the ever-growing demand for speedy deliveries to the "last mile," there will be more distribution centers built. In addition, the widening of the Panama Canal is dropping more containers on land. Watch for growth in this sector as well. Dodge says there will be a surge in warehouse construction, which dropped 7% last year but will jump 8% in starts this year.

- If you follow the path of consequences, keep an eye on the effects of the Affordable Care Act. Now that 16.4 million more Americans have health insurance, experts predict there is going to be a need for more hospital space, doctors' offices and clinics. In addition, the giant bubble of retiring Baby Boomers is getting older, so they will need more care as well. Look for intense construction growth here.

- Multifamily housing was hot, hot, hot last year with 13% increase in starts as more Millennials opted for renting rather than buying. You can tell there will be solid growth in this area because rents are at all-time highs. Low interest rates are still helping builders put up apartments to meet the demand. Another item of note is that many empty-nester Baby Boomers (55-65) are now opting to rent once their children move out and they downsize. Big demand will continue in this sector.

Dodge says to look for 5% growth in units started for multifamily, with 480,000 units added.

Watch also for an increase in demand for Class B rental units as an alternative to Class A which are being gobbled up and driving rents through the roof.

- When it comes to Millennials, now a huge economic force, many hotels and restaurants are refurbishing their properties to become more attractive to this 20-34 demographic. These people now have money and they do have particular tastes that require adjustments by traditional businesses that want to cater to them.

Plus, more legalized gambling in more states created the need for more hotels. And with a recovering economy, more business people are going out on the road and filling hotel beds. Occupancy rates are reportedly at a 15-year high. Dodge predicts 4% more starts in the hotel sector, a drop from the sizzling 18% in 2015, but with more square footage added - 71 million.

- Single-family housing looks promising as well after a slump. Dodge says there will be 805,000 more homes built, a 17% increase. While interest rates were recently raised a tad by the Federal Reserve, there are still incredibly low. Hovering around the 4% range, they are extremely favorable compared to the horrid days of 9% plus rates. Also, an upward shift in mortgage rates will prompt many potential home buyers from sitting on the sidelines to finally making the move. Low unemployment rates certainly support a demand in housing.

(Here are some interesting charts to give you a visual perspective on these commercial construction forecasts).

Commercial construction forecast for 2016 has other implications

There's more good news. According to the Bureau of Economic Analysis all 48 states showed growth in their regional Gross Domestic Product in 2014.  These areas were the hottest: Rocky Mountain - 3.9%, Southwest - 4.3% and Far West - 2.7%. That's another positive signal.

Economists say there are other factors which will be favorable for this year's economic outlook. For one, as the country moves further away from the recession, all those pent up and delayed spending plans by consumers and projects by businesses will continue to let loose.

Unemployment is the lowest it's been in years. The dollar is strong. Interest rates, while starting to rise, are still incredibly attractive. And in fact, as rates rise decision-makers on commercial projects of all types will be prompted to act before those interest rates go even higher, which they are projected to do. Borrowing terms are still favorable as banks are willing to lend.

It just keeps looking better. Here's another reason why. With America's strong dollar and its strong recovery, don't think that investors overseas haven't taken notice. Europe's economy is flat and Asian economies are all over the place. China is unstable because it's hard to get an accurate read on anything. The government tends to finance and then bail out projects left and right.

According to experts, all of those factors mean foreigners with money will look to invest in the safety of the US economy. More capital will pour in for more commercial construction projects.

All this construction does not just benefit builders either. There's an enormous rippling effect. More buildings mean more building materials that need to be made - windows, doors, carpets, lights. More appliances are required such as refrigerators and dishwashers. More construction means more work for landscapers and outdoor commercial site furnishing companies that supply commercial benches, trash cans and bike racks. More stuff has to be shipped which keeps more truck drivers and train engineers busy. The tax base will expand, adding more revenue into municipal coffers. The impact from the construction industry is enormous and far-reaching.

It's ironic. When the country experiences hard times, that's all you hear about. But when the economy recovers, it seems the news media focuses on other more sensational topics.

However, those in the know, know the good times are here. That's great news for builders.

In Chinese astrology, 2016 is the "Year of the Monkey." The monkey is associated with activity. The commercial construction forecast for 2016 certainly predicts one very active year.

Note: The Park and Facilities Catalog is a national supplier of commercial benches, commercial bike racks, commercial trash receptacles, and other site furnishings for malls, shopping centers, schools, multifamily communities, parks and office buildings.

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