Planning for institutional projects such as educational facilities and hospitals across the United States rose in September, while planning for commercial projects— especially offices—declined, according to the Dodge Construction Network, Hamilton, N.J.
The Dodge Momentum Index (DMI) improved 3% in September 2023 to 182.5 from the revised August reading of 178. Over the month, the commercial component of the DMI fell 1%, while institutional increased 9%. The DMI is a monthly measure of the initial report for nonresidential building projects in planning, shown to lead construction spending for nonresidential buildings by a full year.
In general, the commercial and institutional segments have different fundamental drivers—causing the diverging year-to-date trends in each, said Sarah Martin, associate director of forecasting at Dodge Construction Network.
“Publicly funded sectors, such as education, are less sensitive to the recent high interest rates and tighter lending standards than commercial property types, and therefore have more upside potential right now,” Martin said.
Weaker office planning drove the commercial segment of the DMI down, while the acceleration in the institutional segment was supported by stronger education, notably life science buildings and healthcare planning activity.
Year-over-year, the DMI was 5% lower than in September 2022. The commercial segment was 12% below year-ago levels, while the institutional segment was up 12% over the same period.
Continued tight lending standards and elevated interest rates will keep the overall DMI flat to down over the remainder of 2023, but growth should accelerate in 2024, Martin said.
“As a reminder, the DMI leads construction spending by about one year—so stronger economic growth in 2025 should support projects going into planning next year, as owners and developers gain more confidence in where the economy is headed,” she said. “In particular, institutional planning is likely to have more upside potential than commercial markets right now.”
A total of 20 projects valued at $100 million or more entered planning in September. The largest commercial projects to enter planning included the $400 million Platform 16 office development in San Jose, Calif., and the $230 million Waterford Millstone Data Center in Waterford, Conn.
The largest institutional projects to enter planning included the $927 million UC San Diego Research Park in San Diego, and phases three and four of the Kilroy Oyster Point Life Sciences Complex in San Francisco, valued at a total of $634 million.