Planning for construction projects decreased in September partly due to uncertainty ahead of the Federal Reserve’s decision on cutting interest rates and by how much, according to the Dodge Construction Network, Bedford, Mass. However, project plans may take off in 2025 after the cumulative impact of Fed cuts gain traction.

The Dodge Momentum Index (DMI) decreased 4.2% in September to 208.6 (2000=100) from the revised August reading of 217.7. The DMI is a monthly measure of the value of nonresidential building projects going into planning, shown to lead construction spending for nonresidential buildings by a full year.

Over the month, commercial planning contracted 7.8% and institutional planning improved 5.2%.  

A slight slowdown in data center planning was the main factor behind the decline in commercial planning last month, according to Sarah Martin, associate director of forecasting at Dodge Construction Network.

“Additionally, retail and warehouse planning saw a mild pullback, possibly due to owners and developers waiting to assess the impact of Fed rate cuts,” Martin said. “Moreover, the warehouse sector, despite some recent growth in planning, remains in a sectoral decline, while retail planning, after steady growth this year, is expected to plateau as we move into 2025.”

In contrast, the hotel sector is still recovering from prepandemic lows and is projected to experience strong growth through 2025, which likely influenced its continued increase in September.

“We’ve seen a slew of projects entering planning and generating substantial growth in the DMI throughout 2024, but tight lending standards, high material costs and labor shortages have caused projects to move through the planning process more slowly,” Martin said. “A lower Fed Funds rate typically leads to lower borrowing costs and instills more confidence in developers to invest in new construction or move forward with projects that have been on hold.”

By mid-2025, the cumulative impact of the Fed’s rate cuts will be large enough to prompt planning projects to reach groundbreaking quicker and drive stronger growth in nonresidential construction starts, she said.

On the institutional side, education, healthcare and recreational projects were the primary drivers of the DMI’s expansion for the month, with only religious planning posting a decline.

The DMI for September was 21% higher than it was a year earlier. The commercial segment was up 31% from year-ago levels, while the institutional segment was up 4% over the same period.  

A total of 28 projects valued at $100 million or more entered planning throughout September. The largest commercial projects included the $390 million Project Nova Data Center in Eagan, Minn., and phases 1 and 2 of the SNA Data Center in Cedar Rapids, Iowa, which is valued at $375 million per phase. The largest institutional projects to enter planning were the $300 million Kairos Power R&D lab facility and the $215 million Phase 2 of the Kentucky Exposition Center redevelopment in Louisville, Ky.