Construction Starts Fall to Lowest Level in Five Years

Construction spending ended an almost decade-long expansion in the spring of 2020, and experts predict nonresidential construction will remain in recession well into 2021.

Total construction starts fell 10% to $766.3 billion in 2020, according to data released by Dodge Data & Analytics, with nonresidential building starts declining most steeply and posting a 24% loss to $239.9 billion, the lowest level since 2015.

Overall building starts decreased 5% in December to a seasonally adjusted annual rate of $784.3 billion, while nonresidential starts fell 11% that month to a seasonally adjusted rate of $225.3 billion. The office, hotel, and warehouse sectors all posted double-digit declines in December, with total commercial starts falling 23% over the course of the month. 

Before the COVID-19 pandemic shook markets in the spring of 2020, construction was in a sustained growth phase, though cracks began to show in 2019 as private spending slowed. The pandemic, however, forced a reset in the sector. 

The American Institute of Architects’ most recent Consensus Construction Forecast estimates that spending on nonresidential facilities will decline around 5% this year. Commercial buildings – including office, retail, and hotels – will be the hardest hit, according to the AIA, with spending projected to decline 8% in 2021. Manufacturing production and related distribution facilities will likely see declines of 3%, while institutional buildings like healthcare and educational facilities will fare best among nonresidential, with an expected spending decline of 2%. 

“The roller coaster year of 2020 is over, but not forgotten,” said Richard Branch, Chief Economist for Dodge Data & Analytics. “The scars from the pandemic and recession will be long-lasting and resulted in significant declines across most construction sectors. Single family housing, warehouse, and highway and bridge starts were bright spots that cannot be understated for their gains. There will be difficult months ahead for the economy and for construction starts as COVID-19 cases mount. However, the continued rollout of vaccines means 2021 will be a better year.”