The first half of 2019 unfolded positively for the construction industry. Construction volumes grew moderately, with 5% spending growth in the first half of the year compared to the same period in 2018. However, a significant stratification emerged between public and private spending growth. Compared to 2018, private nonresidential spending increased only 1.7%, while public nonresidential spending jumped 10.6%. Government spending is fueling the industry for now, and private spending cool-off is something to keep an eye out for going forward.
As we look at the beginning of 2020, existing construction projects and backlog will continue to keep the industry steady. Although forward indicators predict a gradual to moderate decline in overall construction volume, construction volume is not expected to drop off precipitously in the new year.
The industry will be tied closely to the direction of the overall economy in the medium term. Real estate executives will want to keep an eye out for market indicators as international economies, trade wars, Wall Street and the Federal Reserve all have the potential to create economic uncertainty.
In our recent 2019 Construction Outlook, we identified three key trends that we expect will shape the state of the construction industry in 2020 and help organizations plan ahead for the coming year:
- International economies, trade wars, Wall Street and the Fed will create volatility in existing work for the next six to nine months. Outside influences, including the upcoming 2020 elections, will make an impact on how the industry progresses over the next 12 months. Though we anticipate overall construction costs to grow slowly, they are still anticipated to grow. We expect nonresidential construction spending growth in the range of 0% to 3% over the next 12 months, down from the 5% growth over the past year.
- Despite the potential slowdown, the economy is continuing to grow at a slow but steady rate. Moving into 2020, we predict that construction demand will continue to soften, as willingness to invest in long-term projects sags. There are reasons to be optimistic, though, as both consumer and government spending growth remains elevated. Continued growth in government and consumer spending, along with the existing construction projects and backlog, will continue to keep the industry steady.
- Tariffs have caused construction volatility, but relief could be around the corner as global trade deals march closer toward finalization. In the last three years, tariffs have been a major factor in construction cost volatility and are anticipated to remain the most volatile part of construction forecasting in 2020. The biggest chance for relief from tariffs will come from international trade deals that would lift tariffs in exchange for other trade or economic concessions. In fact, the United States-Mexico-Canada Agreement recently passed in the House is moving closer to finalization.
The bottom line: We expect the construction industry to remain steady in 2020, although growth will be slower than in years past. Construction industry professionals would be wise to closely watch outside influences, such as trade policy, the overall direction of the economy, political uncertainty, corporate earnings and general volatility, which may impact construction costs and the market’s willingness to invest in new construction projects.
Todd Burns is President of JLL’s Project and Development Services for the Americas region. At JLL, Burns’ responsibilities include mobilizing a global team of 6,000 project managers to deliver around $30 billion worth of construction projects annually—nearly 50,000 projects each year. He draws on his training as an architect and previous experience working as a contractor and owner’s representative to provide the firm’s clients with project management solutions.