Declines in single-family residential and residential improvements will lead a contraction in overall industry spending, while most nonresidential building and non-building structure segments are expected to experience growth through 2023. Strong investment growth is expected across lodging, commercial, transportation, manufacturing, highway and street, water supply, and conservation and development, each with year-over-year growth rates nearing or exceeding 10%. Additionally, above-average investment growth is anticipated across office, healthcare, amusement and recreation, and sewage and waste disposal. Corrections in residential construction spending are anticipated to last into 2026, due to softening economic conditions, rate hikes and a possible recession. Consistent with historical industry cycles, similar corrections are expected to bleed over into nonresidential segments beginning late 2023 and into 2024.

New home sales are down nearly 20% year over year while median new home prices have fallen more than 10%. High interest rates and inflation have sidelined many first- time buyers and most institutional investors. Office construction spending will be challenged by high vacancies, increasing sublease activity, rising unemployment, and tighter lending standards. Data centers (a subset of offices) will continue to outperform traditional office space. Warehouse and distribution, a subset of the commercial sector, remains in high demand and has grown in recent years to represent more than 50% of U.S. commercial investment.

Economy-wide, concerns have shifted from a potential energy crisis to a potential banking crisis – more specifically, risk-averse investors upending regulators’ carefully-laid plans. We do not expect anything on the scale of 2008 (or even 1990), but tightening credit conditions will have sweeping consequences. Regulators remain mindful of inflation, and interest rates will be high for the foreseeable future. We are also beginning to see the long-forecasted effects of these rate hikes – from both the construction industry and the banking sector. Still, we would like to continue to sound a note of caution for those in the industry. We have seen markets change almost daily since 2020, and we expect this to continue. Fortunately, most of us have adapted to this situation, and contractors are less likely to be caught off- guard by sudden changes in the market.