In a measured recovery expecting construction growth of 5 percent this year, the renovation market is doing its part. Renovation has sometimes propelled—and sometimes buoyed—new construction activity. Though end-of-year tallies will tell the final story, the remodeling market sprang into 2017 following strong 2016 performance in commercial, institutional and residential facilities.
“Warehouses, offices and hotels all showed healthy new addition growth but also showed healthy growth for alterations,” said Robert Murray, chief economist for Dodge Data & Analytics.
Dodge looks at remodeling projects sized at $200,000 and above. In 2016 renovation activity, warehouses saw a 12 percent gain, representing $1.6 billion. Retail was up 20 percent ($8.3 billion), office remodeling grew an impressive 30 percent ($13.1 billion), and hotels saw a robust 39 percent increase ($3.3 billion). In institutional construction, the education sector enjoyed 6 percent growth ($14.9 billion), while work on transportation terminals grew 17 percent ($4.1 billion).
“Overall, nonresidential building (new, additions and alterations) for 2016 was up 7 percent ($237.8 billion),” Murray said.
He anticipates continued growth for renovations this year but said it was too early to predict total 2017 numbers.
Brian Turmail, senior executive director of public affairs for the Associated General Contractors of America (AGC), offered some insight behind the numbers. AGC gathers federal figures, including demographics, and member-shared information captured in part through an annual survey revealing contractor yearly performance and future work projections.
“The strength of retail renovation activity really surprised us,” Turmail said. “You hear about the demise of brick-and-mortar, yet renovation is especially strong at a time when major retailers are shrinking their footprint and closing stores.”
Turmail finds retailers aggressively restructuring their properties to be more attractive to millennials and younger consumers. He sees malls being rethought and turned into town centers with satellite education classrooms and other tenants. Strip malls are getting makeovers, as well.
In office space, Turmail attributes the strong remodeling effort to several trends including open layouts, work mobility and overall smaller office footprints.
“There is especially robust activity on the coasts,” he said. “For instance, old office space in San Francisco is being repurposed for high-tech companies. High capital markets, such as Los Angeles and New York, are busy right now—including Chicago to some extent. We are seeing corporate moves from suburban offices to downtown areas, some moves in reverse, but both often to existing structures that will need to be renovated.”
Interestingly, AGC members are seeing a decent amount of office space being converted to multifamily, too. Murray said multifamily property remodeling was up 4 percent ($6.1 billion) in 2016.
When looking to the strong hotel remodeling activity, Turmail finds it both positive and surprising.
“In general, we thought this investment cycle should be playing out soon,” he said. “But we are hearing from members that hotel brands are striving to make their case to millennials [by styling] their properties in a more exciting and responsive way. For example, lobbies are being rethought so they can also be work spaces for guests, not just a space for check-in. Like retail, a freshened-up look is a business trend. The competitiveness in leisure-demand cities is also helping drive renovation.”
In education, Turmail said 6 percent remodeling gains can be attributed to improved district coffers that can address long-needed renovation and schools accommodating larger student populations as other schools close. Suburban office parks are also experiencing conversions to education centers or multi-use developments.
There are a few influencers in transportation terminal renovation advances, as well.
“We see investments in light rails [and] street cars, airports repurposing and upgrading terminal space and gate areas, and consolidated rental car facilities,” Turmail said. “Some airports are going to be a hub, some not, and both are making renovation plans accordingly. One example is Memphis International Airport. [It] is no longer a hub for the major airlines. It’s renovating for smaller amounts of traffic, making its space more efficient yet customer-friendly.”
Turmail cited other movements driving airport renovations, including the reality that getting through security is now the first must-do for passengers.
“Airports are moving more amenities and shopping to the terminals, past the security zone,” he said. “Also, people who spend more time in airports expect a higher quality atmosphere these days, and so more food, entertainment and retail opportunities are being developed. We’re also seeing infrastructure-type renovation such as the automated people mover [APM] system train line at Orlando International Airport.”
A residential remodel
Residential intelligence adviser Metrostudy forecasts “big ticket” residential remodeling activity to rise 4.4 percent in 2017. In the Residential Remodeling Index, released in January, Metrostudy anticipates a 3.1 percent increase in 2018 and another 2.7 percent in 2019. In fact, renovation activity has surpassed its former first quarter 2006 record by 6.1 percent. Remodeling activity has seen 19 consecutive quarter year-over-year gains since 2011.
The latest Demographic Change and the Remodeling Outlook, a biennial report by Harvard University’s Joint Center for Housing Studies (JCHS), shares similar news.
“Homeowners are feeling more confident and spending on bigger remodeling projects,” said Abbe H. Will, research analyst, JCHS. “What was necessary replacement activity spending is shifting to more discretionary expenditures including kitchen and bath remodeling. On average, we see 2 percent gains year-over-year for 10 years. Our short-term indicators are showing an especially strong market into 2018 as we continue to see improvements in income and home values.”
National remodeling expenditures by homeowners are projected to reach almost $320 billion by early 2018. Gains will continue, she said, though possibly smaller in the future.
The JCHS outlook characterized significant movements fueling strength in the remodeling sector through 2025. One was millennials entering the remodeling market in greater numbers as they buy older, more affordable homes in need of renovation.
“Millennials in the 30–35 age range are looking to be homeowners,” Will said. “They are purchasing older housing stock from elderly owners who haven’t invested in their homes for years. These buyers are willing to do discretionary remodeling work in these underinvested homes. Energy-efficiency efforts will be part of the remodeling.”
A strong demand for rentals in cities and outlying metro areas has also created a competitive market prompting building owners to remodel their existing properties.
Home automation is also emerging as a remodeling driver.
“There also seems to be a lot of interest in this trend during remodeling efforts,” Will said. “It’s still a small part of the market but is an exciting new niche defining itself and growing and is on the homeowner’s radar.”
The growing aging-in-place market
Aging in place is an ever-growing movement driving renovation. JCHS estimates today’s market at $13 billion.
“Expenditures by homeowners age 55 and over are expected to grow by nearly 33 percent by 2025, accounting for more than three-quarters of total gains over the decade,” the outlook states. “The share of market spending by homeowners age 55 and over is projected to reach 56 percent by 2025, up from only 31 percent in 2005.”
Marianne Cusato, professor at the University of Notre Dame’s School of Architecture, is a housing expert for HomeAdvisor, a nationwide digital service matching homeowners and prescreened service professionals. Cusato is the author of HomeAdvisor’s October 2016 Aging in Place Report.
“The aging-in-place or thriving-in-place market is taking hold and holds endless potential as the population ages,” she said. “There are simple things including choices in lighting, especially if lighting might be an issue due to deteriorating eyesight. But lighting takes some care. For instance, recessed can lighting will cast different shadows versus other overhead lighting or wall sconces. Maybe floor lighting is a preference for the customer. Your goal as an electrical contractor may be to achieve a mood that communicates comfort but also helps with declining eyesight. You can also communicate the value in prepping for something [e.g., controls] that might be added later in the home. It’s also a matter of changing the dialog to designing a better living environment for everybody that’s also helpful as homeowner’s age.”
While those homeowners in their 50s and 60s might be comfortable with modern technology, some older Americans may find it challenging.
“Smart technology has so many moving parts and can raise many questions for customers when applied to automation for lighting, HVAC and thermostats and security,” Cusato said. “The ease of apps that manage home controls from a smartphone might make seniors’ lives easier or could prove a challenge. Any contractor who can be an expert in smart technology and its application will be an asset.”
There is one major challenge facing this remodeling market.
“If you look at aging, there’s a massive stigma,” Cusato said. “No one wants to get old. Aging is deeply individual. Your physical or mental shape can belie your age. It can get really hard to tell when you are ‘old.’ Nobody wants to see grab bars before you may need them.”
For that reason and others, this work may be a tough sell.
“That said, we are anticipating that people will want to age in their homes or community now and into the future,” Will said. “In our data, we continue to see people 70 years of age and older wanting to stay in their homes. The contractor opportunity lies in informed remodeling as housing stock today is not well equipped for aging in place. I’d say were poised for a vibrant market.”
To learn more about American housing and renovation, visit www.jchs.harvard.edu/research/improving-americas-housing and http://tinyurl.com/lyuwalc.