Commercial Construction Trends

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Throughout 2021, spending in the non-residential construction sector continued to recover from the steep declines seen at the start of the pandemic. That recovery has slowed down in the first half of this year. In its most recent release, the Census Bureau reported declining construction spending in 12 of the 16 non-residential categories from March to April. If you compare spending to last year at this time, however, it’s clear that growth within certain non-residential building sectors remains strong. The greatest strength can be seen in manufacturing, with a 34% increase year-over-year, and commercial, with an 18% increase from April of 2021.

The monthly construction spending data is being closely watched by analysts trying to gauge the impact of the current economic climate on the non-residential marketplace. As the Federal Reserve attempts to tame inflation, economists warn that the economy may move into a recession. Construction analysts point out that private construction projects may be more impacted than public. For those contractors working public sector jobs – like road and highway projects – analysts expect the economics will be more favorable. Highway and street, one of the largest non-residential segments, already shows a 6.5% increase year-over-year. President Biden signed the $550 billion federal infrastructure bill in 2021 ensuring that federal infrastructure outlays will increase over the next five years. The investment will touch everything from roads and bridges to the nation’s broadband, water, and energy systems as well as airports, ports, and public transit.

Despite all the uncertainty in the market, contractor sentiment remains high, although contractors are increasingly concerned about profit margins. Lingering pandemic impacts and the war in Ukraine continue to pressure the construction sector causing equipment shortages and delays as well as rising material costs. In addition, contractors continue to face workforce challenges, with compensation costs putting additional pressure on the already challenged bottom line. All these forces are causing some contractors to delay projects entirely.

Most contractors have millions of dollars of equipment that they own or lease on a worksite at one time. They could face significant losses due to theft, accidents, vandalism, fire or other causes, adding one more economic risk to already tight margins. With all of these pressures, make sure your insureds are aware of the benefits of Cornerstone Complete®. This is our comprehensive builders risk product that recognizes the changing and increasing exposures at construction projects designed to help protect against property and financial losses. While our Contractor’s Equipment policy allows maximum flexibility for equipment that is owned or under long-term lease by our insureds. We can provide a specialized, customer focused insurance solution for your insureds.

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