Construction planning drops for fifth month on interest rates, lending issues

Dive Brief:

  • The Dodge Momentum Index, a benchmark that measures nonresidential building planning, dropped nearly 1% in July due to tighter lending standards and higher interest rates, according to the Dodge Construction Network.
  • The commercial component ticked down 0.2%, while the institutional component fell 1.9% in July, according to Dodge. But compared to the beginning of the year, commercial planning fell 10%, whereas the institutional segment gained 16%.
  • “While both segments of the index fell this month, underlying project data points to divergent trends in the nonresidential sector,” said Sarah Martin, associate director of forecasting for Dodge Construction Network. “As we progress through the remainder of 2023, weaker commercial activity, resulting from tighter lending standards and higher interest rates, will counter sturdier institutional activity, bolstered by public funding and less sensitivity to interest rates.”

Dive Insight:

All commercial construction sectors, such as retail, warehouse and office, either pulled back or remained flat over the month of July. On the institutional side, education and healthcare projects also posted significant decelerations in activity, according to Dodge. Other subcategories within institutional include public building and dormitory construction.

That means the index, which peaked in December 2022 and typically leads actual construction spending by 12 months, has now shed gains for the fifth straight month, according to Dodge. 

Meanwhile, architectural activity, which also provides a forward-looking gauge for upcoming construction work, remained essentially unchanged, according to the most recent data from the American Institute of Architects. That report also pinpointed high interest rates as a critical culprit for overall stagnancy in activity, according to the report.

A total of 15 projects valued at $100 million or more entered planning in July, according to the Dodge report. The largest commercial projects included:

  • The $400 million Kraft Heinz distribution center in DeKalb, Illinois.
  • The $190 million PTC warehouse and distribution facility in San Antonio, Florida.

The largest institutional projects to enter the planning stages included:

  • The $240 million Lexington High School in Lexington, Massachusetts.
  • The $216 million courthouse improvement project in San Luis Obispo, California.
  • The $200 million Solano Hall of Justice courthouse in Fairfield, California.

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