As the year draws to a close, we thought it would be helpful to look ahead at the construction industry and see what’s in store for 2024.
Over the past few years, supply chain issues, labor shortages, economic uncertainty, inflation, and rising interest rates have challenged the construction industry. However, even with these factors, demand for construction, particularly in specific segments, continues, albeit more tempered.
In 2023, spending surged 19.7% in nonresidential construction sectors and is expected to increase an additional 2% in 2024, according to the AIA Consensus Construction Forecast Panel. On the residential side, the National Association of Homebuilders estimates that the number of single-family homes under construction will rebound to 925,000 units in 2024 after falling to 744,000 units this year.
Bright spots for the remainder of 2023 and 2024, according to the AIA, include:
- Healthcare, driven by the aging baby boom population
- Manufacturing/distribution, thanks to the post-pandemic reshoring of production resulting from supply chain issues during the pandemic
- Hotels, with leisure travel returning to normal following the pandemic
- Education, as school districts and higher education institutions play catch-up on projects in the wake of COVID
According to Deloitte’s report on the outlook of the construction and engineering market in 2024, we can also expect to see a boost to the industry associated with manufacturing, transportation infrastructure, and clean energy infrastructure. Funds from three critical pieces of legislation passed in 2021 and 2022 — the Infrastructure Investment and Jobs Act (IIJA), the Inflation Reduction Act (IRA), and the Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act —are expected to flow into the industry.
Inflation, Construction Costs Continue to Impact the Industry
After a year of rising interest rates and high inflation, the construction industry should expect to continue to face the lingering effects of economic uncertainty for yet another year, according to the Deloitte report. Federal interest rates recorded a 22-year high in September 2023, at 5.3%, and a 108% year-over-year increase. Additionally, the consumer price index in U.S. cities increased by 4% year over year in August 2023. Further tightening of monetary policy by the Federal Reserve Board could trigger concerns of an economic downturn, even as inflation cools.
Additionally, according to Deloitte, construction wages will likely rise in 2024 as labor demand surpasses supply. Rising labor rates can affect project execution and profit margins, particularly if the increased expenses cannot be passed on to clients.
The labor shortage in the construction market continues, with 68% of construction firms in a survey conducted by the Associated Builders and Contractors (ABC) saying they are struggling to fill open positions. To meet the incoming demand for work, 69% of surveyed firms expect to increase head count in the next year, according to ABC.
Trends to Follow
Construction market trends continuing into 2024 include:
- Sustainable construction with the use of high-performance building materials and energy-efficient systems.
- Investment in robotics and other emerging technologies, such as BIM (building information modeling) and generative AI, to enhance efficiency. For example, generative AI can generate more efficient, more sustainable, and safer designs. This technology can also be used to optimize construction schedules, automate tasks, and improve safety.
- Leveraging digital tools and data-driven insights for better project visualization, precise planning, and real-time collaboration among stakeholders across job sites, resulting in cost savings, streamlined operations, and timely project completion.
- Investment in workforce development through apprenticeships and training programs and expanded DEI (diversity, equity, inclusion) representation in hiring.
- Increased worker safety will become even more critical as the industry evolves, with better training, more frequent inspections, and greater resources dedicated to this area. The payback for these efforts will be in the form of fewer injuries and more lives saved.
The construction industry is a pillar of the global economy, providing jobs and fueling various market segments. It’s also a resilient industry, as it weathers fluctuations and challenges. As we enter a new year, ensure you and your firm are well protected with a comprehensive insurance program that addresses existing and new exposures.