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Investment in Nonresidential Continues Decline

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Nonresidential investment.

Investment in nonresidential structures decreased at an annual rate of 11.4 percent in the fourth quarter of 2021 and has now contracted in eight of the past nine quarters, according to the Associated Builders and Contractors. The association juxtaposed this against overall economic growth of 6.9 percent in the quarter.

The U.S. economy expanded 5.7% in 2021, the fastest rate of growth since 1984. Investment in structures declined 8.2 percent in 2021 after contracting 12.5 percent in 2020.

“Commercial real estate is among the most compromised segments of the economy,” said Anirban Basu, chief economist, in a prepared statement. “The pandemic has profoundly shifted behavior. Remote work is far more common, and a greater fraction of business is being conducted via Zoom or other virtual platforms. The result has been higher office vacancy and reduced hotel occupancy. Neither is good for demand for construction.

“Retail bankruptcies that began during the pandemic’s first year, in part because of the dramatic move toward e-commerce, have contributed to increased store closures and vacant retail space,” said Basu. “That has further reduced demand for commercial construction services.

On the other hand, said Basu, investment has increased in some areas.

“Among the most obvious are development of data and fulfillment centers, backbones of the e-commerce economy. Of course, the built environment is heavily comprised of office buildings, shopping and strip malls and hotels. Accordingly, even significant construction of data and fulfillment centers has not been sufficient to counteract the weakness in commercial construction. That said, health care and industrial construction should emerge as other sources of expanding demand for construction services during the coming months.”

Source: ABC

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