Editor’s note: To kick off 2023, Construction Dive is taking a look at the outlook for the country’s top construction verticals. Click here for the first story in the series.
Construction leaders can expect institutional building construction to hover around the same level of activity in 2023 as it did in 2022, said Richard Branch, chief economist at Dodge Construction Network.
Dodge forecasts institutional building starts, which include education, health care, recreation and transportation structures, to hit $171 billion in 2023, the same amount in nominal dollars as 2022. That level could have been less, but government stimulus dollars in the space should hold up institutional project starts in 2023, similar to past recessionary environments.
“If you think back to the Great Recession, institutional construction didn’t bottom out until 2011,” said Branch, noting that government relief programs at the time helped prop up the sector. “It was actually stable in the first couple of years because of public funding for education, healthcare and other projects. We think the same is the case here.”
Here are the outlooks for some of the sector's most important project types:
Lab projects boost education activity
Education project starts, which make up a little more than half of all institutional construction, will climb up to $72.7 billion in 2023, a 5% gain from 2022 activity, according to Dodge. That growth is due in large part to laboratory projects associated with schools, which are included in Dodge’s education category.
Starts in traditional K-12 and college projects are “essentially flat” because of weakening demographics, said Branch. In states like New York, New Jersey, Pennsylvania and Massachusetts, the education building stock dates from the 1920s through the 1940s. That will eventually translate to increased renovation and replacement activity in the K-12 sector, despite population trending down in that region.
On the other hand, Sun Belt states where demographic growth is a lot stronger will see new construction in order to accommodate the increase in population, said Branch.
“As we look at 2023, K-12 [starts] will continue to be flat to slightly down, college [starts will be] flat to slightly up,” said Branch. “The real strength in education in 2023 will continue to be in the lab space.”
Hospital construction dominates
Healthcare construction, such as inpatient hospitals, nursing homes and standalone clinics, will remain “one of the big opportunities in the institutional space,” said Branch.
Dodge projects starts in the sector to reach $42.3 billion in 2023, a 14% jump from 2022 activity.
Branch expects inpatient hospital construction to continue to grow considerably, especially as more hospital projects enter the planning stages.
Through September 2022, seven of the top 10 institutional projects were in the healthcare space, specifically hospital construction, according to Dodge.
“We’ve seen a huge underinvestment in inpatient facilities over the last decade and as we look at projects entering planning, we’re seeing a huge uptick in hospital projects,” said Branch. “So, we think we’re starting to see a reversal of that trend, and that will push healthcare construction considerably higher as we move into 2023.”
Recreation and transportation sectors remain level
Dodge expects recreation projects, such as casinos, convention centers and student centers, to tick slightly up just 1% to $19 billion in 2023. That market is closely aligned with the hotel and higher education outlooks, both of which are not expected to perform considerably well in the next year.
Meanwhile, Dodge forecasts transportation-related construction, such as airline terminals, to drop 36% in 2023 to $17 billion.
That big drop in 2023 is due to the massive $9.5 billion Terminal 1 expansion and $1.5 billion Terminal 4 expansion at JFK Airport that kicked off in 2022 inflating the year's overall comparative numbers. Without the JFK Airport project, transportation starts in 2022 totaled $16 billion, meaning 2023’s forecast of $17 billion will be an increase of $1 billion, or about 6%.