Chereb: Structural changes coming to key construction markets

Two shifts took place in recent years that put aggregate demand in key markets on new trajectories.

One demand shift is in nonresidential construction, which is noticeably lower. The other is in residential construction, where continuous growth has been spurred.

For the past 10 years, nonresidential aggregate consumption paced, on average, about 5 percent higher than residential. In the coming years, however, residential permits will pace, on average, about 40 percent higher than nonresidential.

This dramatic change is occurring not so much because COVID levels are dropping (and because they will probably stay where they are for years to come), but because of changing work environments. Lower-density work floors and the increased use of remote communication systems will make the change permanent.

Another structural change is work habits. It’s difficult to gauge whether these are slowly adjusting or if an economy is emerging from tremendous upheaval.

Our conclusion is that the COVID event forever altered the U.S. economy. The Centers for Disease Control & Prevention, the Food & Drug Administration and mandates are now heavy influences that will affect our everyday lives.

What it all means

So, how does all of this impact aggregate demand?

To us, this all leads to lower nonresidential demand and higher residential demand.

Today’s level of nonresidential demand will last for a few more years before picking up pace. Average annual gains in nonresidential will be 2 to 3 percent, whereas residential demand will grow, on average, by 4 to 6 percent per year over the same stretch.

Unfortunately, the big changes in nonbuilding we are all expecting probably will not happen at the pace and size we are hoping for.

Still, aggregate pricing strength is growing in most areas, and pricing will be even better in 2022.

David Chereb Group, Ph.D., is with David Chereb Group (DCG), which produces customized market forecasts by major segment of construction, from the county level up. Clients use DCG market intelligence reports for business planning and acquisition analyses in aggregate, ready-mixed concrete and cement. Visit davidcherebgroup.com for more information.

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