2021 Construction Outlook: Slow, Uneven Recovery Expected

By Garret Murai, January 11, 2021

The way we started 2020 was a lot different than how we ended 2020. Here’s a recap:

The Start of 2020: When we started 2020 construction economists were saying that we might have hit the top of the roller coast in construction, but that while construction starts were expected to fall in 2020, it was anticipated to be a modest dip of 4% as opposed to a free fall.

The End of 2020: By the end of 2020 construction starts were estimated to be down 14% compared to 2019.

What to Anticipate in 2021:

After losing an estimated 14% in 2020 to $738 billion, total construction starts are anticipated to regain just 4% in 2021 to $771 billion, according Dodge Data & Analytics in its 2021 Dodge Construction Outlook.

According to Dodge Data & Analytics, “[u]ncertainty surrounding the next wave of COVID-19 infections in the fall and winter and delayed fiscal stimulus will lead to a slow and jagged recovery in 2021. Business and consumer confidence will improve over the year as further stimulus comes in early 2021 and a vaccine is approved and becomes more widely distributed, but construction markets have been deeply scarred and will take considerable time to fully recover. The dollar value of starts for residential buildings will increase 5% in 2021, nonresidential buildings will gain 3%, and nonbuilding construction will improve 7%. Only the residential sector, however, will exceed its 2019 level of starts thanks to historically low mortgage rates that boost single family housing.”

According to the 2021 Dodge Construction Outlook:

Single Family Residential: As a result of historically low mortgage interest rates and a preference for less dense living during the pandemic, single family residential housing starts are expected to increase by 7% and the number of units are expected to grow 6% to 928,000. This follows a 2% decline in 2020.
Multifamily Residential: With people moving to the suburbs, multifamily residential housing starts are expected to fall 1% and the number of units are expected to decline by 2% to 484,000 units. This follows a 14% decline in 2020.
Commercial Buildings: Commercial construction starts are expected to increase by 5% with warehouse construction leading the pack as e-commerce giants continue to build out their logistical infrastructure. Office starts are also expected to increase due to rising demand for data centers as well as renovations to existing space, but retail hotel activity is expected to languish. This follows a 23% decline in 2020.
Manufacturing Facilities: Manufacturing facility starts are expected to remain flat in 2021 as declining petrochemical construction and weak domestic and global activity dampen starts.
Institutional Buildings: Institutional building starts are expected to increase a tepid 1% as growing state and local budget deficits impact public building construction. Educational construction is expected to decline while healthcare facilities are expected to rise as hospitals seek to improve in-patient bed counts. This follows an 18% drop in 2020.
Public Works: Public works construction starts are expected to remain flat in 2021 due to continued uncertainty surrounding additional federal aid to state and local areas. This follows a 9% drop in 2020.
Utilities: Electric utilities and gas plant starts are expected to increase a whopping 35% led by expected groundbreakings for several liquified natural gas export facilities and an increasing number of wind farms.