ABOUT THE US CONSTRUCTION/INFRASTRUCTURE MARKET
Most construction companies are welcoming the end of 2020 with joy. However, uncertainty remains about whether 2021 will bring opportunities or continued challenges.
At first glance, it might seem that the construction sector weathered 2020 relatively well. According to the Statistics Office report dated December 1, 2020, when evaluated using seasonally adjusted figures, the value of completed construction was almost at the same level in October and February. However, some differences are evident beneath this appearance. While there was an increase of %7 in housing construction expenditures allocated to both detached and larger housing construction and homeowner-made renovation and improvement activities, expenditures on privately owned non-residential buildings decreased by %6, and expenditures on existing public projects decreased by %2.
Government spending is expected to fall further in 2021 as public projects that began long before the pandemic are completed. Private sector spending on non-residential buildings is also projected to decline further, at least in the first half of the year.
The decline in income experienced by all property owners is limiting the budget, financing, and other resources they can allocate to construction. Businesses planning expansion and modernization projects, groups investing in income-generating buildings and developers of such structures, universities and other non-profit organizations, and state and local governments are among these actors. While some property owners have been forced to cease operations entirely, many will find that demand for their planned expansion projects has disappeared, or at best become uncertain, and will hesitate to begin construction in 2021.
In the short term, demand is clearly limited for only a few niche projects outside of housing. These include projects to make changes to existing structures necessitated by the coronavirus, or renovations related to a new occupant or tenant taking over a property. Demand for "last-line" facilities, such as distribution centers close to residential customers, will also remain strong, similar to demand for data centers. Beyond hospitals, there is a need for more facilities and nursing homes for medical services, monitoring, and testing. Some manufacturers may also want to secure additional capacity to meet increased demand for specific products. Simultaneously, the increase in housing construction, partly in newly developed areas, will also necessitate a certain momentum in related infrastructure, retail and consumer service buildings, and facilities for local public institutions.
However, the efforts of the state and local governments to balance their budgets will limit the resources allocated to infrastructure and the construction of new public buildings. This is because decreases in tax and fee collections for public services, along with unforeseen expenditures related to the pandemic, could create serious problems. The picture for 2021 might be somewhat brighter if the state takes measures to compensate for the significant revenue losses experienced by local governments in general, and especially road, transportation, and airport operators, and allocates substantial resources for infrastructure projects. However, the lengthy process of transferring resources to institutions, the time-consuming design, bidding, and evaluation processes in tenders, and the long-term procurement of equipment, materials, and labor by the winning contractor for implementation mean that expenditures in these areas will largely be postponed until after 2021.
School construction can be seen as a partial exception in this context. Since funding for these projects is generally derived from property taxes, and property taxes, unlike value-added taxes, income taxes, or road usage fees, do not decrease, no funding difficulties are anticipated in this area. Unlike changes in passenger or vehicle numbers, there has been no decrease in the number of students who can safely return to schools after the virus threat has passed. As the number of families relocating increases, so will the demand for new schools, or at least schools that have undergone renovations or expansions.
The pandemic has also created new challenges in securing skilled labor for on-site production, which is already difficult to find. To the extent that composite materials and products can offer alternatives that can replace on-site production or enable faster assembly by smaller or less skilled teams, there will be an increase in demand for composites, even if the products are more expensive.
Therefore, 2021 is likely to be a challenging year for contractors and the construction industry. However, it could also be a turning point for composite manufacturers looking to enter the construction sector.
Note: This article has been translated from the Winter 2021 issue of Composites Manufacturing magazine and was written by Mr. Ken Simonson, Chief Economist at Associated General Contractors of America.
