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Gains and Losses in the Construction Industry During January

By Katie Kuehner-Hebert | Feb 27, 2024
Construction Employment on the Rise

Planning for commercial projects continues to be weak, but there is an end in sight.

Planning for commercial projects continues to be weak, but there is an end in sight.

The Dodge Momentum Index (DMI), issued by Dodge Construction Network, rose 0.1% in January to 184.1 from the revised December reading of 183.9. During the month, commercial planning dropped 1% and institutional planning grew 2.1%.

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.

The commercial portion of the DMI has generally been in decline since its peak in November 2022 for two primary reasons, according to Sarah Martin, Dodge’s associate director of forecasting.

“Across most commercial segments, tighter lending standards and higher interest rates have made it more difficult to secure funding for construction projects,” Martin said. “Owners and developers were likely weighing current economic conditions in 2023 before deciding to enter a project into the planning queue.”

As a result of the Fed’s interest rate hikes, banks have been tightening lending standards since the third quarter of 2021. While the net percentage of bankers who decided to increase lending standards marginally slowed in January according to the Federal Reserve’s Senior Loan Officer Opinion Survey, the majority of participants (84%) plan to keep standards where they are in 2024¾keeping credit conditions tight this year.

Weaker demand for warehouse and traditional office space has also constrained commercial planning momentum, Martin said. Slower growth in warehouse planning pulled down the commercial portion of the Index this month, while steady education and healthcare planning supported growth on the institutional side.

“Warehouse construction reached historical highs between 2019 and 2022, driven by the strong growth in e-commerce trends throughout the COVID-19 pandemic,” Martin said. “After multiple years of surging demand, however, warehouse construction has entered a phase of decline.”

U.S. consumers began to spend more on services, rather than goods, in 2023, lessening demand for warehouse space, she added. In 2023, signs of an overbuilt market emerged as Amazon scaled back on new warehouse construction to prioritize internet technology and transportation channels. Consequently, warehouse planning has pulled back in recent months, but remains historically elevated.

Additionally, the peak in November 2022 was a historic high for the commercial segment of the DMI.

“The softening of commercial planning is also a symptom of the market working its way back to more historically normal levels,” Martin said. “Currently, we expect the Fed to begin pulling back rates in the back half of 2024. Since commercial planning activity typically lags construction spending by about a year, owners and developers should gain confidence in where market conditions will be in the back half of 2025 and enter more projects into planning as a result.”

Year over year, the DMI was 3% lower than in January 2023. The commercial segment was down 12% from year-ago levels, while the institutional segment was up 15% over the same period.

A total of 15 projects valued at $100 million or more entered planning in January. The largest commercial projects included the $200 million renovation of the historic Magnolia Hotel in Dallas, and the $169 million Microsoft Data Center in Leesburg, Va. The largest institutional projects included the $224 million NREL laboratory in Golden, Colo., and the $223 million Wichita State University Biomedical building in Wichita, Kan.

About The Author

KUEHNER-HEBERT is a freelance writer based in Running Springs, Calif. She has more than three decades of journalism experience. Reach her at [email protected].  

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