The AIA combined the data from several sources to put together a construction outlook for 2024.
Compared to the nearly 20% increase in construction spending this year, 2024 is projected to be less impressive, with only an increase of around 2%. Manufacturing/Industrial projects remain on the rise but are only expected to rise 5% instead of 50% like this year.
Offices are likely to remain less necessary than before the pandemic. Many companies have become accustomed to the luxury of working from home and have not returned fully or at all from this.
The slowdown is expected for Q3-Q4 of 2024 since this year's projects will continue to the beginning half of next year.
The AIA article explains the manufacturing situation as follows:
"The strong growth in spending on manufacturing facilities is largely attributed to the reshoring of production resulting from supply chain nightmares during the pandemic. Indeed, the pandemic did encourage many producers to shift some of their activity to domestic sources, but much of the growth was due to other motivations. Last year, a third of industrial construction was related to computer, electrical and electronic equipment, while over a quarter was for chemical facilities.
There are emerging concerns that outsourcing the manufacturing of high-tech products leaves our economy and national defense more vulnerable. The $280 billion in funding provided by the 2022 federal CHIPS and Science Act is designed to advance domestic research and manufacturing of semiconductors in the United States. These funds will boost spending for these facilities for much of the coming decade.
The growth in chemical manufacturing facilities likewise is only marginally related to reshoring activities. Pharmaceuticals account for a sizeable share of production in this sector, but plastics have recently come to dominate this category. Growth in manufacturing facilities here has more to do with the recent growth in domestic gas and oil production in the U.S., and the competitive advantage of producing plastics from these inputs domestically rather than shipping the oil and gas to foreign markets for the production of these products.
Distribution facilities have helped generate growth in an otherwise weak retail sector. Last year, warehouses accounted for 58% of construction spending in the broader retail and other commercial category. Retail facilities accounted for only 12%, while food and beverage facilities accounted for 9%. Spending on warehouses increased 26% last year, pulling up the broader sector.
However, moving forward, growth in spending on distribution facilities is expected to moderate. The growth in e-commerce activity has slowed since the pandemic, and spending will increasingly be focused on automating existing facilities rather than building new ones."
The reason for the slowdown is also explained by the AIA article:
"The first half of this year has seen gains in construction spending on nonresidential buildings approaching 20%. However, this scorching growth rate is expected to moderate a bit moving into the 3rd and 4th quarters. Even with the easing in supply chain issues and the improved pricing of many construction materials and products, elevated interest rates, more restrictive lending on the part of banks, nervousness over the direction of the economy, and construction labor constraints are expected to slow the pace of growth."
Interest Rates are to remain high in 2024. This may discourage some from building also.