What Trends Will Affect D.C.–Area Construction in 2020 and Beyond?
Our industry is at an interesting inflection point. We have enjoyed years of growth, as the economy experienced the longest bull market in history. But, whispers about what may lie ahead—and fears that the good times cannot go onforever—leave many companies worrying if they are prepared for the future.
To help ease concerns, Bozzuto Construction has looked at data-driven perspectives on the trends that could impact your business over the next two years. While modular construction, green building, and new technology are affecting our industry, I will discuss more granular issues at play for commercial construction in the D.C. area.
Overall, we see three major trends to focus on in 2020 that will persist into 2021: industry growth, legislation changes and election impact.
Industry Growth Is Healthy, But Uncertainty Remains
Nationally, the Commercial Construction Index shows revenue, backlog, and new business confidence on the rise in Q3 2019.[i] Locally, construction could increase approximately 5% in 2020. This growth is solid, but it’s a far cry from the 22% year-over-year increase we saw from 2017–2018.[ii] The current volume of planned projects seems to be slowing and becoming more concentrated than years’ past.
In addition, rising costs and ongoing labor shortages are a continual challenge. As expenses increase, underwriting residential development becomes harder—so projects must be unique in order to justify the high rents they will need.[iii]
Key Takeaway: Commercial construction will be strong in 2020, but labor shortages and cost increases could continue to present challenges over the next 18 months.
Legislation Changes Are Ahead
A number of adjustments to codes and law could be on the horizon. Below are a few important local updates to be aware of.
- Updates to D.C.’s Comprehensive Plan: The D.C. council voted in October to make significant changes to its guidebook for growth and development. The Plan includes a renewed focus on development throughout the city—not just in pockets. In addition, the new language acknowledges that revised affordable housing mandates could “increase costs per unit.” They are still adjusting aspects of this Plan and asking for public input through January 31, 2020.[i]
- New Housing Targets: In addition to Comprehensive Plan changes, D.C. Mayor Muriel Bowser has set new housing targets for each of the city’s 8 wards. These guidelines include new affordable housing goals to meet by 2025, including 3,490 units in Rock Creek East and West, and 1,400 in Capitol Hill.[ii]
- IBC Changes: The 2018 IBC code changes for multifamily buildings could be a mixed bag for construction costs. Some new rules may affect which materials you can use, including fasteners. Others, like “3002.1 Rated Corridors,” could change how we protect elevator shafts from smoke transfer on every floor.[iii] Maryland has already adopted these codes, and other jurisdictions could be right behind.
Key Takeaway: New development goals, housing targets, and building codes could dramatically affect how our industry builds—and where.
Questions About Election Impact Continue
Will the presidential election have any measurable effect on your business? Analysis of construction GDP from 1947–2016 finds that the president in office seems to have little effect on the construction industry’s economic role. Generally speaking, construction makes up anywhere from 3.5–5% of total GDP, with fluctuations coming more from economic changes than politics.
Historically, construction reacts more to market changes than the economy as a whole. So,when the economy improves, construction outperforms. And when market conditions decline, construction suffers more than other sectors. In other words, the election will likely have less impact on your business than general economic trends.
One detail is worth watching: infrastructure spending. A 2011 study indicated that $1 billion in infrastructure spending can result in 13,000 new jobs—with 68% in the construction industry.[i]
Key Takeaway: Next year’s elections may not greatly impact our industry immediately, but should local or national winners prioritize housing or increase economic spending, we could all benefit.
Overall, we have a positive outlook for 2020. The key to staying ahead in any market condition is to understand how disparate details will combine to change the industry’s trajectory.
If you would like to discuss any of this information in more detail, please contact me at email@example.com so we can continue the conversation.
Mark Weisner President Bozzuto Construction Company
[iii] Source: 2018 IBC Changes PDF provided by Bozzuto.
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