Overall nonresidential construction spending is expected to fall by 2 percent this year before rising by 5 percent in 2012, adjusted for inflation, the American Institute of Architects (AIA) said on Wednesday.

The projected decline marks a deteriorating outlook compared to the prior survey in July 2010, when a 2011 recovery was expected.

That recovery has been pushed back by historically low lending rates for real estate projects, lingering effects of overbuilding and an unfavorable bond market that has limited municipalities' access to funding, the AIA said.

Potential higher borrowing costs and rising energy prices are areas of concern for the architecture and construction industry, said AIA Chief Economist Kermit Baker.

Construction of industrial space is seen falling 11.8 percent this year, with smaller declines projected for office buildings, hotels and retail space. Spending is seen lower both this year and next on public safety infrastructure, but is expected to be up slightly in areas like healthcare, religious and recreational facilities.

The consensus forecast includes predictions from McGraw Hill Construction, IHS-Global Insight, Moody's economy.com, and others.

The AIA's monthly billings index, a leading indicator of activity because it measures work architects have performed, last month reached its best level since November 2007 and has pointed to increasing demand for design services for two consecutive months.

The billings index is considered an indicator of construction activity nine to 12 months in the future, and is tracked by companies that generate sales from the sector.

Most diversified industrial companies get at least some revenue from nonresidential construction, including Honeywell International Inc, Tyco International Ltd, Johnson Controls, and Caterpillar Inc.

European companies like Philips,Siemens Schneider Electric and lock maker Assa Abloy also participate in the sector.