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The commercial construction industry has suffered project and revenue losses in 2020 due to COVID-19 related shutdowns. Office construction recorded the highest decline in December 2020, followed by industrial and institutional building construction sectors. Also, low availability of building products and materials was a larger concern in H2 2020 as the pandemic continued. Although, construction industry outlook remains positive in 2021, entertainment, travel, and hospitality industries continue to struggle in the US.
According to ConsTrack360, the commercial building construction market in value terms increased at a CAGR of 9.3% during 2015-2019. In 2020, the construction activity in the sector recorded a decline of nearly 20%. Over the forecast period of 2021 to 2025, the market is expected to record a CAGR of 10.2% to reach USD 330 billion by 2025.
Majority of contractors are currently experiencing delays on some projects due to COVID-19, a trend expected to continue in Q1 2021. In H2 2020, on an average around 37% of projects were delayed. Also, due to COVID-19 related production delays, construction costs increased from October 2019 to October 2020 in various U.S. cities including Los Angeles, San Francisco, New York, Boston, Seattle, Denver, and Las Vegas.
Over 72% of contractors believe that the construction market will provide adequate new business in the next four quarters. Also, contractors plan to increase their spend on tools and equipment. Despite near term challenges, growth momentum remains positive 2021 and the entire forecast period.
The commercial floor space in 2020 was mostly occupied by offices followed by industrial building, and institutional building construction. Further construction of office spaces is expected to increase with tech giants expanding their presence. Amazon for instance, announced plans for construction of phase two of its second headquarters in Arlington, Virginia, worth US$2.5 billion. The project includes construction of four towers and nearby amenities. The first phase of Clark Construction, a two 22-story office building began in January 2020 and is likely to be concluded in 2023. The first buildings in the second phase are likely to be concluded in 2025.
Downtown Los Angeles is witnessing increasing construction of large-scale mixed-use projects such as The Grand, the US$1 billion project which will include 436 residential units, 176,000 sq ft of retail space, a 20-story Equinox Hotel with 300 plus rooms, 12k sq ft of meeting and event space and other amenities.
Other major mixed use projects in the city include Fig+Pico, a mixed project with three hotels next to the Los Angeles Convention Center; 520 Mateo project will include 105k sq ft of office space and 55k square feet of open spaces as well 475 apartments. As the economic activity picks up later in 2021, the demand is likely to increase, thereby improving commercial construction spending over the forecast period.While the residential segment is expected to recover through 2021, overall spending growth in 2021 will likely be led by an uptick in public, infrastructure, and commercial building starts and related investments.
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