2021 Construction Forecast: The Road to Recovery

Cohen Seglias Pallas Greenhall & Furman PC
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Despite the exhaustion and chaos that the COVID-19 pandemic brought to the construction industry in 2020, turning the page to 2021 offers several reasons for cautious optimism, including two approved coronavirus vaccines (with a possible third soon to follow) and a $900 billion relief package (with perhaps more on the way). Recent economic forecasts for the construction industry cite these developments in rendering positive, but not entirely certain, outlooks.
 

Richard Branch, the chief economist at Dodge Data & Analytics, summed it up, “While the recovery is underway, the road to full recovery will be long and fraught with potential potholes.” Branch explained that “[a]fter losing an estimated 14% in 2020 to $738 billion, total construction starts will regain just 4% in 2021,” growing to $771 billion. Against the backdrop of the pandemic’s lingering effects, forecasters have identified the following trends.

Residential Construction

The pandemic has pushed many city dwellers to the suburbs as they look to avoid health concerns surrounding urban mass transit and public crowding. Near record low mortgage rates are expected to promote continued residential construction growth. Branch expects single-family home construction starts will rise as much as 7% in 2021; however, multi-family homes “will pay the price for single family’s gain,” with the dollar value of multi-family starts anticipated to fall by 1% this year.

Commercial Building

After dropping 23% in 2020, Branch forecasts a 5% dollar value increase in commercial starts in 2021. Branch also reports that “[w]arehouse construction will be the clear winner as e-commerce giants continue to build out their logistics infrastructure.” Anirban Basu, the chief economist for Associated Builders and Contractors, reports that COVID-19 accelerated these preexisting commercial construction trends. Basu explains, “Among the most obvious trends is e-commerce, a trend that was gaining market share even before the global health crisis began. An ongoing proliferation of fulfillment and data centers will serve this ongoing boom. However, this could translate to tougher times ahead for retailers and shopping centers . . . .” Development site consultant Tom Stringer expects suburban commercial construction to grow as companies look to move offices away from densely populated areas and build new manufacturing and distribution centers to help alleviate pandemic supply chain issues.

Public Works

Branch expects public construction to remain relatively flat but stable during 2021. According to Basu, “Countervailing forces are at work in public construction. On one hand, weakened state and local government finances suggest weaker public works spending going forward. On the other hand, . . . federal spending on infrastructure could increase as part of a post-inauguration stimulus package. Republicans and Democrats do not agree on much, but leaders from both parties agree that America spends too little on infrastructure.” While the federal government recently extended the FAST Act (for Fixing America’s Surface Transportation), any growth in the public sector likely will depend on further stimulus or infrastructure bills.

Utility Construction

With the growing push for renewables and other climate change initiatives, experts anticipate energy construction, especially large-scale solar and wind projects, will rise significantly. Branch forecasts a 35% gain for utilities and renewable energies construction in 2021.

Takeaways

The construction industry is showing signs for growth in 2021 and beyond, but such growth may be checked by uncertainty and COVID-19’s lingering effects on construction operations. Contractors will continue to face pandemic-related time and cost impacts from added safety measures (PPE, physical distancing, screening), workforce shortages, and supply chain disruptions, all of which can cause delays, accelerations, and production losses.

Contractors can manage these risks and enhance profitability by taking affirmative steps to protect their rights and claims under their contracts. Proactive measures include asking for extensions of time, ensuring compliance with all contractual notice requirements, and carefully tracking all extra work and costs.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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