Construction Market Trends in 2020: What Actually Happened

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Way back in March, we wrote up a forecast for construction market trends in 2020. In it, we covered how these market trends would impact electrical professionals, including which jobs were on the rise in the new year. And then 2020 happened.

Surprise, surprise, every forecast changed drastically once COVID-19 spread. In the months that followed, job sites slowed down and shipping lines delayed even as essential workers forged ahead.

In this 2020 recap, we’re looking back at the original forecast and comparing it to what actually did happen during one of the most unpredictable years ever.

A National Snapshot

The Forecast

Economic growth was already predicted to slow, but construction market trends were not predicting a deep decline in 2020. Although a slower economic growth would impact construction starts, activity should’ve remained high as projects from previous years neared completion.

Richard Branch, the chief economist for Dodge Data & Analytics, a leading construction forecasting firm, said that “the dollar value of starts for residential buildings will be down -6%, while starts for both nonresidential buildings and nonbuilding construction will drop -3%.”

What did this mean? Construction was slowing, but it was being fueled by several strong years of economic growth behind it. Most thought this would help maintain the construction industry at a high volume for some time.

What Happened

New construction starts are down across the board. However, with a backlog of projects that extend six to 12 months into the future, the impact won’t really be felt until the later quarters of 2021. 

The biggest question: where did we see the sharpest declines in new construction starts?

Surprisingly, residential projects remained consistent from 2019, down just 1% year-to-date. It’s most likely that the residential side saw fewer cancellations and more short-term delays. As many job sites figured out how to work safely, we’ve seen one of the best three-month periods of residential construction starts since 2005.

On the other side, nonresidential building starts are down 26%, which includes office and commercial construction.

For electrical contractors who specialize in residential, this is good news. Even for those who work in commercial construction, the industry has a wealth of construction jobs available. (Plus, a shortage of skilled workers.)

While electrical contractors currently make up about 13% of all construction workers, an estimated 48,750 electrical jobs are left vacant.

Earlier this year, gaps in job completion were a real concern. Now, as commercial construction sees more delays, it might create a backlog of projects for electrical professionals in 2021 and beyond.

This is similar to what we heard on the ground from Shawn Howard, one of our own District Managers based out of Cincinnati, Ohio.

“Commercial construction job sites were down because contractors didn’t know what to expect,” he said. “In the beginning, a lot of jobs were on the back burner. It took a few months before construction continued. There were a lot of logistical concerns. How do you get plumbing on-site without electricians? How do you keep the project moving forward? Nine months later, things appear to be back on track.”   

Single-Family Homes

The Forecast

Experts were on the fence about new single-family home construction, but some had an optimistic outlook at the beginning of 2020. For example, the National Association of Home Builders (NAHB) forecasted a +3.8% increase in single-family housing starts up to 902,000 units.

Others, like Branch, believed that single-family homes peaked in 2018 and would experience a decline of 5% in 2020 pre-pandemic.

What Happened

Although limited building material availability and outright construction delays slowed the single-family market down, demand has been at all-time highs thanks to low interest rates.  

“Home sales have exceeded for-sale home construction recently, which means additional home building in the near term,” NAHB Chief Economist Robert Dietz explained.

According to the NAHB, single-family and multifamily starts are 11% higher in the Midwest, 5.7% higher in the South, 4.5% higher in the West, and 1.4% lower in the Northeast.

What does this mean for electrical contractors? Residential jobs should remain consistent across every region, despite the pandemic. While the NAHB started off the year with a modest prediction of 900,000 homes, we should actually see closer to 1.5 million homes by year’s end.  

“Out of most jobs, new residential was the one least affected in our district,” said District Manager Howard, who oversees eight City Electric Supply branches. “We did see service work come to a complete stop for a short while, but as contractors adapted to working contact-free, homeowners felt safe enough to let them back in their houses to make repairs.”

Multi-Family Homes

The Forecast

It came as no surprise that multi-family properties saw most growth near major cities in recent years. At the beginning of 2020, it was projected to account for 5% of all construction.

For electrical contractors who live near major cities, multi-family units are good for business. If you want to work with technology and greener buildings, that’s a plus for this market. However, as the recap will show, it all depends on where you live.

What Happened

In a recent report from Yardi Matrix, there were only 283,000 units constructed in 2020 compared to 321,000 units a year ago. Some main reasons? Temporary bans on construction, a slower pace of construction, crew shortages, and even a slowdown in funding and building permits. 

However, even though multi-family units are declining in 2020, seven out of 20 major cities are projected to build more. Where? Most of them are in Texas, actually. Of the top-five cities building new units, Dallas, Houston, and Austin make the list, along with New York and Atlanta.

Office Construction & Data Centers

The Forecast

Since 2009, almost a quarter of all new office construction happened in Texas since the last recession — particularly in Houston, Dallas-Fort Worth, and Austin. This growth was punctuated by the recent move of Toyota’s headquarters to Plano, Texas. 

However, it seemed that office construction hit its peak in 2019. The dollar value of commercial building was expected to slip about 6% in 2020, mainly in warehouse and hotel construction.

The area of office construction expected to suffer the least? Data centers. Construction market trends indicated a rise in data centers and increased demand for faster data speeds and cloud-based services would drive this sector forward.

What Happened

According to Technavio, a global market research firm, data center market growth will increase compared to 2019.

Pre-pandemic, data centers were going to be an exciting and attractive option for electrical professionals. Data centers require a lot of energy. This makes it perfect for electricians to support a newer construction market while cutting energy consumption and meeting sustainable efforts.

Post-pandemic, we realized just how important data centers are to our infrastructure. Demand for web-enabled services skyrocketed as a lot of the workforce transitioned to working remotely.

Now, we see bullish projections on the data center construction market. Most experts predict data centers to grow by more than $30 billion from 2020-2024. 

For electricians, this presents a huge chance to tap into a booming market. Google, Facebook, and Amazon are all constructing more data centers and offices in Dallas-Fort Worth, Chicago, Nashville, Loudon County in Northern Virginia, and Newton County in Georgia.

Manufacturing Outlook? Check Again.

The Forecast

Trade tensions indicated a negative impact for new manufacturing plant construction. After an estimated decline of 29% in 2019, it appeared that this market would contract before ultimately rebounding once trade tensions improve.

What Happened

SalesLeads, an industrial and commercial market intelligence firm, reports that the manufacturing landscape is recovering from the first months of the pandemic.

Despite being down 11% year-to-date in September, each month saw a rise in completed projects. Manufacturing plants, plant expansions, distribution centers, and renovations all increased from the lows in March and April.

For electricians who work in industrial and utility-scale construction, this is a positive sign. Construction market trends appear to point out that the pandemic marked only a temporary setback for large companies that already had the capital to expand their infrastructure.

Commercial Construction Levels Out

The Forecast

From 2015-2019, Amazon has invested over $5 billion in the construction fulfillment centers. Although that’s only a fraction of the more than $120 billion in commercial construction, it reflects the overall market.

Companies are becoming more efficient working with their existing infrastructure, particularly within their own delivery networks. Despite a decade-long growth record, commercial expansion might receive some hesitation.

What Happened

After almost a decade of commercial expansion, and an unprecedented pandemic, the AIA Consensus Construction Panel is expecting the commercial building sector to decline a total of 20% over 2020 and 2021.

But there is a bright spot in a sea of uncertainty. With commercial expansion slowing, companies will need to retrofit their existing facilities to stay ahead. For commercial electricians, these retrofits will more than likely integrate smart technologies, lighting controls, and LED lighting improvements across the board.

District Manager Shawn Howard is already seeing commercial business return to most of his branches.

“Residential and commercial appear to be back in full swing, at least in our market,” Howard said. “Of course, everything dropped once the pandemic happened, but commercial construction work is returning, and service work is trending back up. Some of the larger commercial job sites won’t have many people working on-site. But, those projects are picking back up, too, just at a slower rate.”

“Before, you might’ve seen 1,000 cars outside some commercial buildings in our area, but now only a few are there. Hopefully, as we keep moving forward, those parking lots will fill back up,” he added.

Power: Renewable is In

The Forecast

Dodge Data & Analytics predicted a steep 27% drop in the construction of electric utilities and gas plants. However, this was probably a reaction to the 83% increase seen in 2019.

Although the electrical construction market trends indicated a slow down in 2020, most experts predicted increased renewable energy jobs. Future growth looked promising, especially as renewables outpaced coal in terms of total energy production.   

What Happened

Wind and solar costs continued to go down, making it one of the cheapest ways to meet growing energy demand. This helped shelter renewable projects already contracted over 2020 and 2021. However, the International Energy Agency (IEA) expected the first downward trend in renewables since 2000, declining by 13% compared to 2019 due to delayed projects.

What does this mean? Short-term uncertainty, mostly. With most projects already contracted, 2021 should rebound to 2019 levels. For electrical contractors who specialize in solar, the pandemic might actually create more stability for the future.

Solar in particular relies heavily on a global supply chain, specifically materials sourced from China. With supply chains greatly affected back in March and April, many countries took this opportunity to ramp up production of solar components, including PV panels. This should help improve competitive pricing and increase material availability — both good solutions to a shortcoming in the solar market.

2020 Construction Market Trends Wrapped Up

Here’s a quick recap of the recap.

  • Residential construction is rebounding close to 2019 levels.
  • Multi-family home construction is down, unless you’re in Texas.
  • Data centers are going to be a huge growth opportunity for electricians in the first half of this decade.
  • Commercial construction is down, but retrofits should increase.
  • The renewable market is rebounding and seeking more supply chain stability.

What We Can Do for You

For electrical contractors in key markets, technology-focused jobs are on the rise. Electrical professionals have an opportunity right at their doorstep, and City Electric Supply is ready to help.

With 500+ locations in the U.S., 30,000 products online, and a distribution network serving the entire nation, CES has the infrastructure in place to supply any job in any market.

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