School construction will drive the institutional segment of the nonresidential building category in 2017, as projected by Dodge Data & Analytics in its 2017 Dodge Construction Outlook report.

According to Dodge, institutional building will advance 10 percent in 2017 (to $118.5 billion), resuming its expansion after a slowdown the previous two years. The sector saw dollar-volume increases of just 1 percent and 3 percent in 2015 and 2016, respectively. In terms of square footage, starts declined 2 percent in 2015 and increased just 1 percent in 2016. However, starts are projected to grow by 8 percent (to 315 million square feet) next year.

The educational sector, which is the largest nonresidential building segment, is seeing an increasing amount of K-12 school construction. This is supported by the passage of recent school construction bond measures. Additionally, more growth is expected in the amusement category—particularly convention centers, sports arenas and casinos—as well as transportation terminals.

Education

Educational building starts were on the uptick in 2014 before a pause in 2015. However, renewed growth is projected in 2016, and this will carry into 2017 with a square-footage increase of 9 percent (to 127 million) and a 10-percent spike in dollar volume (to $53.1 billion).

Dodge chief economist Robert Murray said at Dodge’s Construction Outlook Conference last month that demographics in enrollment are starting to drive the K-12 sector, in addition to the deteriorating condition of existing schools due to a lack of investment in recent years. State and local governments have been addressing this the past couple years with a growing number of bond measures.

The K-12 segment is a key driver in the educational sector. According to Murray, in 2015, square-footage for K-12 school construction was 4 times the size of colleges/universities/community colleges.

The higher education segment is still important, and starts have scaled back the past two years. Some positive indicators do exist, however. According to Murray, college endowments investment returns are projected to tick back up in the coming years, and major universities now re-visiting deferred capital spending plans.

Healthcare

Dodge projects healthcare facility starts will increase 5 percent in 2017 (to 69 million in square feet and $25 billion in dollar value) following a 4-percent decline in 2016.

“The healthcare facilities category continues to hover around 65 to 70 million square feet, so we’re not yet able to see renewed expansion in a sustained manner,” said Murray.

He said debate over healthcare reform has created near-term uncertainty, and other factors that could be holding back gains are uncertainty over reduced Medicare reimbursements, Affordable Care Act implementation and more healthcare mergers. He added that a Supreme Court decision in favor of federal subsidies in states with exchanges set up by the federal government eased some, but not all, uncertainty.

That aside, some healthcare building prospects look positive. Murray said the sector is still supported by a need to replace aging facilities, the growth of elderly population and a move toward “hub-and-spoke” system. Additionally, storefront clinics are growing, which could be a plus for renovation work.

Other Segments

Transportation terminals are expected to see a 5-percent decrease in starts in 2016 but a big 25-percent increase in dollar value due to large renovation projects. In 2017, Dodge projects starts will climb 12 percent (to 21.5 million square feet) and 10 percent in value (to $9.7 billion). This will be driven by major airport construction projects, which is a sector that uses large expanses of glass.

The amusement category will see major increases in 2017, growing 13 percent in starts and dollar volume (to 46.9 million square feet and $17 billion, respectively). Large-scale convention center and sports arena projects are on the horizon.

Public building construction has been on the decline for much of the last decade due to tight fiscal condition, though Dodge projects 2016 will represent the bottom of the cycle and that 2017 will see a 6-percent increase in starts and a 9-percent jump in dollar value in the segment.