Click here for the full 2014 economic-forecast presentation.
With Washington State among the country’s healthiest economies 2014 looks promising for healthy growth among most of the state’s construction sectors according to Cliff Brewis of McGraw-Hill. Brewis was the featured speaker at November 20’s capacity-crowd joint AGC/NAIOP/AIA Seattle 2014 Construction Forecast breakfast meeting at the Museum of History and Industry. The strongest sectors in Washington into 2014 and beyond said Brewis are expected to be Health (with an anticipated increase of 41% in construction activity) Multi-Family Residential (up 35%) Highways (up 32%) Retail (up 21%) Sewer and Utilities (also up 21%) and Single-Family Homes (up 20%). He also noted that Washington’s improved local economy will be a strong influencer of construction activity overall clearly more of a factor than the national economy.
Brewis shared a wealth of insight into what 2014 is shaping up to be for the A/E/C industry both nationally and for Washington state and shed some light on a variety of political and economic factors that will play a role in the coming year.
Certainly the national economy is in recovery mode and western Washington in particular is among the country’s healthiest economic regions. Brewis pointed out though that the public side of the economy isn’t contributing to the recovery as we have seen in past similar periods primarily due to sequestration and tightening of public funding across the board. He pointed out that this puts the burden of the recovery onto the private sector — and while many parts of the private sector are healthy it is private-sector confidence that is critical to private investment. These days that confidence can sway quickly in either direction. “An economy primarily driven by the private sector is always more volatile” said Brewis “subject to more starts and stops — and that’s exactly what we’re seeing now.”
As we move forward in 2014 according to Brewis the effects of the federal government’s sequestration will certainly have more impact on discretionary government spending which directly affects construction. The Fed and where interest rates do or don’t go will of course also have a significant influence on the A/E/C industry. Even if interest rates do begin to rise he noted negative impact on A/E/C sectors should be minimal as long as interest rates don’t rise too quickly.
Economic recovery is not at all consistent across the country Brewis added. Employment levels clearly drive the demand for construction overall but many regions lag behind others in both. Washington state overall is at about the two-thirds mark on the national scale in terms of overall construction activity and economic health. Our diverse economy of aerospace technology shipping and international trade lumber and more all contribute to a fairly balanced economic health. Accordingly “Seattle is one of the best places in the country to be and Washington overall is a national leader in economic recovery” noted Brewis.
In Washington State there’s been a strong climb in single-family home construction and it should continue expected to reach two-and-a-half times 2009’s low mark and about a 50% increase over 2013’s volume. Brewis said this is being fed by a pent-up demand in the SFH market which is an important factor in economic development and a good sign for Washington.
Multi-family housing has also done well recently – especially in the Seattle area – but is “showing some signs of maturing” said Brewis. “This market still has legs though and even with some slowdown in its growth rate it may well have three to five good years left.”
After peaking in 2007 retail construction in Washington hit low points in 2010 and 2012 and is expected to see a continued moderate growth through 2014. Retail work is very closely tied Brewis noted to new single-family home construction.
Like the retail sector Washington’s hotel-construction market also hit its low points in 2010 and 2012 but made a significant improvement in 2013 that’s expected to continue through 2014.
Washington’s healthcare sector was down a bit in 2013 after reaching a high point in 2008 but should see stronger growth in 2014. Recent and continued consolidation in the health market has dampened new construction a bit however – a trend that may continue.
“K-12 education continues to struggle” said Brewis primarily due to diminishing funding sources. It could start to improve however in the next 1-2 years. (He noted that in Washington double-digit growth is expected in school-age children over the next five years and that there will be a significant need for educational funding.) Higher-education construction activity has already begun to improve however especially in the research-facility area.
Road and highway work is “declining everywhere else” said Brewis after peaking in 2011 and then hitting a low mark in 2012. He sees challenges with funding through 2016 especially in roadwork and pointed out that highway work is not subject to effects of sequestration since it is primarily funded through gas taxes.
Brewis cautioned the audience that the national deficit continues to inhibit our ability to fund recovery programs. “Most economists agree that our overall deficit issue is making people very nervous.” Despite that Brewis also concluded by saying that “It is a new global economy. As a rising tide will lift all boats we have the potential to enter soon into a truly remarkable global economic period.”