According to data from the Associated Builders and Contractors (ABC), spending declined in 11 of the 16 nonresidential subcategories. Private nonresidential spending fell 0.9%, while public nonresidential dropped 1.5% in March.
“While the longer-term outlook for nonresidential construction is superb, the pandemic is lingering, creating much damage to commercial real estate fundamentals,” says ABC Chief Economist Anirban Basu. “The lodging, office, and commercial segments experienced declines in spending in March. Office vacancy rates are elevated in many markets, and the industry experienced negative net absorption. The trials and tribulations of hotel operators, retailers, and restauranteurs are also well known. Private nonresidential construction spending is down more than 9% from March 2020.”
Year-over-year, construction spending in March was down 5%. Although large-scale federal projects exist in the pipeline, including massive infrastructure launches, the money has yet to materialize.
Said Basu, “State and local government finances have generally held up far better than many had predicted earlier in the COVID-19 crisis, but many governments have had to spend significant operational sums to countervail the public health crisis and therefore had to redirect money away from infrastructure.”
ABC’s Construction Backlog Indicator foresaw this state of events. They remain optimistic that, as vaccinations pervade and public and private businesses reopen, recovery exists in the offing. Said Basu: “As the broader economic recovery picks up additional speed later this year with more pervasive vaccinations and re-openings, both private and public construction spending should begin to manifest more positive momentum later this year and into 2022.”
Although construction spending remains in decline, the Associated Builders and Contractors remain optimistic for equalization in the construction industry.