The construction industry will realize a gain of 13 percent in 2015, and then climb another 6 percent next year, Dodge Data and Analytics said in its 2016 Construction Outlook.

Total construction industry starts will climb 6 percent to $712 billion next year, Dodge Data and Analytics said in its 2016 Dodge Construction Outlook.

"The expansion for the construction industry has been underway for several years now, with varying contributions from each of the major sectors," Robert Murray, chief economist for Dodge Data and Analytics, said.

Dodge has also predicted a 13 percent gain in 2015. And if the industry does in fact reach or surpass that mark, "it would be the strongest annual gain so far in the current expansion," Murray said.

Nonbuilding construction has contributed mightily to this year's output. That's mainly because of several massive liquefied natural gas terminals in the Gulf Coast region, as well as a few power plant starts. Residential building is up 18 percent this year, driven primarily by the multifamily housing sector. But single-family construction is slowly moving upward now.

Nonresidential building has slowed this year after surging 24 percent in 2014. It is now predicted to be flat to slightly down in 2015, mainly because of softness in the manufacturing, commercial and institutional segments.

So what will the construction industry look like in 2016?

The economy should continue its upward momentum, and the construction industry should move in lockstep with it.

"While short-term interest rates will be going up in 2016, given the expected rate hikes by the Federal Reserve, the increases in long-term interest rates should stay gradual," Murray said. "On the plus side, the U.S. economy continues to register moderate job growth, lending standards are still easing, market fundamentals for commercial real estate continue to improve, and more funding support is coming from state and local construction bond measures."

Dodge Data predictions, by segment:
• Residential is expected to increase 16 percent.
• Nonresidential will improve 9 percent.
• Nonbuilding should decline 14 percent.

"If the volatile electric power and gas plant category within nonbuilding construction is excluded," Murray said, "total construction starts for 2016 would be up 10 percent, after a corresponding 8 percent gain in 2015."

More specific details:
• Single-family housing will rise 20 percent in dollars and 17 percent in units to 805,000. Murray said the 17 percent rise in starts might even be conservative, ad believes growth in this sector is expected to "take off" after a sluggish recovery.
• Multifamily housing will increase 7 percent in dollars and 5 percent in units to 480,000. Low vacancies, rising rents, and the demand for apartments from the millennial age group should stimulate additional development in this segment. Multifamily construction has dominated the residential sector in recent years. But the single-family market is starting to recover, so the multifamily sector is expected to slow down next year, according to Murray.
• Commercial building will increase 11 percent. Office construction will continue to lead this segment. Retail construction has experienced a disappointing 2015, as weak sales have been "a handicap for construction," Dodge reported. A significant number of store closings as well as a major loss in square footage from Wal-Mart construction, led to this year's decline. However, 2016 is expected to be a better year for retail.
• Institutional construction will advance 9 percent. Education is seeing more and more K-12 school construction. As enrollment in both K-12 schools and colleges/universities continues to grow, demand for new facilities will go up.
• Manufacturing plant construction will drop 1 percent in dollars, following a 28 percent plunge in 2015. Dodge found the environment for plant construction to be "less favorable" this year than in 2014, as plummeting oil prices resulted in the slowdown and stoppage of several energy-related projects.
• Public works will be flat. A modest reduction in highways and bridges should be balanced with new projects in environmental public works.
• Electric utilities and gas plants will plummet 43 percent, after a sharp 159 percent jump in 2015. Starts for liquefied natural gas terminals will be substantially less, and new power plant starts will also be down. Murray called electric power and gas plant construction the "most volatile category," as the sector has seen major swings each year. Dodge attributed 2015's skyrocketing results to several major solar farm and natural gas projects. In 2016, however, Dodge expects a "heightened sense of uncertainty for this sector."

Source: Dodge Data and Analytics
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