As we look back on 2014, the construction market continued on its slow and steady ride of improvement. The strength of the multifamily segment drove growth in the residential sector. A second year of substantial growth in the manufacturing segment and a small bump in institutional construction helped fuel the nonresidential sector. We also saw continued improvement in the commercial segment across several areas of the country. All of this activity led to a much more diversified growth market. As we look forward, this also sets the stage for another year of sustained expansion. Most economic forecasts predict 2015 will be another year of solid growth. For example, Dodge Data & Analytics (formerly McGraw-Hill Construction) is forecasting construction starts to rise 9% in 2015. Most forecasts also anticipate this overall growth to continue for the next three to four years. But it’s important for you to make sure your business is aligned with the fastest growing and most robust segments of the market. So let’s take a quick look at a few key areas of interest.
Although single-family starts are only about half of what they were 10 years ago, this segment is still moving in the right direction. And even though the multifamily segment is projected to back down just a bit from its torrid pace over the last two years, the market fundamentals are still going to drive healthy investment. Dodge predicts single-family housing will increase 15% in dollar value and 11% in number of units. It also forecasts multifamily will increase 9% in dollars to a level of $67.2 billion.
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Commercial construction bounced back this year and is expected to follow that up with another double-digit year of growth in 2015. Dodge notes commercial building will improve by 15% in dollar value to a level of $87.7 billion. Office construction is leading the charge as financial and tech firms expand their organizations in many large and mid-sized cities across the country. Low vacancy rates in some key markets are finally pushing investors and owners to green light new projects again. Warehouse construction starts came close to posting their fourth straight year of double-digit growth in 2014. Despite the first quarter misstep in this segment, Dodge notes double-digit growth in square footage and dollar amounts in 2015 — 12% to 179 million sq ft and 14% to $11.7 billion, respectively. It should come as no surprise that online retailers are fueling much of the growth in this sector. Rising occupancy rates and an increase in business and leisure travel are also supporting investment in the hotel construction market. The current levels of investment in the hotel sector are also well below their peak level of about seven or eight years ago. This means there’s plenty of room for growth.
As we all know, the institutional buildings market is heavily supported by public funding. Economic conditions over the past three to four years hit this segment really hard. But it finally looks as though current market conditions are going to once again support growth. Dodge predicts institutional starts will grow 8% to 311 million sq ft in 2015. This equates to a 9% gain in dollars to $103.6 billion. There’s a lot of pent-up demand in this sector, which should help spur many new projects next year.
These are just a few of the bright spots to note as we move forward into the new year. For more detailed analysis of the overall economic and construction outlook for 2015, turn to page 10 and spend some time reading the special report Amy Fischbach pulled together for us. Her findings are based on recent presentations and reports generated by the key market research companies and construction economists in the construction sector. In closing, I’d like to wish everyone a Happy New Year. I hope your holiday season is filled with joy and your businesses prosper and grow in the coming year.
