As the economy continues to steadily recover, FMI, a construction and engineering industry consulting firm, predicts new construction projects will grow 8% this year based on the firm’s “Construction Outlook 1^st Quarter Report.”

“Despite the long list of challenges the economy is facing, we expect total construction put in place to grow 8% in 2015 or somewhat faster than in 2014,” said J. Randall Giggard, managing director of research services for FMI. “The biggest challenge faced by contractors this year continues to be finding and retaining the best talent.”

According to the report, most new construction is in the private sector. At 15% and 16% respectively, commercial construction and lodging construction are expected to see the most growth.

Commercial

“Commercial construction ended up 12% at year-end 2014, which is better than earlier expected,” said Giggard. “We continue to forecast continued moderate growth through 2019, after a 15% improvement in 2015 to $65.8 billion (See Chart 1). Although we expect slow improvement, the early part of 2015 may be slower due to the severe winter weather we had and the dockworker slowdown on the West Coast. Consumers are still confident about the economy, but they are also remaining conservative in their discretionary spending at least until wage recovery improves.”

According to Barbara Farfan writing for Retail Industry Expert, “Retail store closings in the U.S. are no longer a reflection of poor economic health; they are a reflection of an antiquated distribution system that is increasingly losing its appeal to the average consumer.”

Lodging

Another sector expected to see the most growth is lodging, of which the latest forecast shows it grew 18% in 2014 will slow a bit—to 16%—in 2015. According to FMI, solid growth will continue through 2016 and slow to just 6% through 2019.

“Lodging construction is one of the fastest-recovering sectors with a healthy project pipeline that will take it through 2015,” said Giggard. “Solid growth will continue through 2016 and [then start slowing] through 2019 (See Chart 2).

Housing

As the rate of foreclosures continues to decline and mortgage rates remain low, FMI expects solid growth of 9% for 2015 and just a bit lower through 2019 (See Chart 3).

According to RealtyTrac, the 1.1 million properties with foreclosure filings in 2014 was the lowest annual total since 2006, when there were 717,522 properties with foreclosure filings nationwide. With economic improvements, FMI predicts a strong growth this year, and like the lodging section will gradually slow through 2019.

“The fast pace of multifamily construction is expected to slow to 11% in 2015 and slip to 8% by 2018,” said Giggard. “The inventory for new homes was down slightly to 5.4 months in January. Little changed from the same time last year, yet inventory is near record-low territory.”

Office

Dropping unemployment rates and rising gross domestic product (GDP) have provided a lift for the office forecast to 19% growth last year, according to financial and professional services firm Jones Lang LaSalle. “Rental growth is accelerating, with the annual rate of growth on prime office assets.”

Another office space trend noted by the National Association of Realtors is that vacancy rates are forecast to slightly decline from 15.7% at the end of 2014 to 15.6% through the fourth quarter of this year (See Chart 4).

Healthcare

“Healthcare construction decreased 6% in 2014, and we forecast that it will grow just 4% in 2015 to $40.6 billion,” said Giggard (See Chart 5). “With continuing changes due to healthcare reforms, a difficult funding environment and changes to delivery methods, healthcare is facing many changes right now. Ambulatory healthcare centers and renovations to existing facilities in order to be competitive and keep up with changing technologies and patient needs will continue to be the focus for construction.”

According to Health Facilities Management, “Ambulatory care accounts for approximately one-third of healthcare spending in the United States, slightly more than inpatient care, according to the U.S. Department of Health & Human Services’ Agency for Healthcare Research and Quality.”

Giggard noted that one of the major goals for healthcare is to continue to refine its processes to be leaner and more efficient. “The new model for hospitals is the medical center with a cluster of offices including beds which will deliver more of a patient’s needs.”

Educational

“Our forecast for education construction shows growth of just 1% in 2014 to $78.5 billion and growing 3% in 2015,” he said (See Chart 6).

According to Giggard, one of the biggest hurdles to new construction continues to be state and local budgets, and after taking large cuts during the recession, it has been a difficult battle to get back to previous levels of spending.

Educational construction trends expected for the remainder of 2015 include greater attention to reducing energy use and employing green building technologies and more flexible designs for changing classrooms and greater use of natural light.