The office sector lags construction planning

Dive brief:

• The Dodge Momentum Index, a benchmark that measures the planning of non-residential construction, fell 1.4% in February due to a lackluster reading in the office sector, according to the Dodge Construction Network. For the month, commercial planning, which includes office construction, fell 2.3% while institutional planning rose 0.1%.
• February’s drop marks the first decline since November, where weak trade planning also dragged down overall planning levels, according to data from Dodge.
• “However, the index is still 25% higher than just two years ago,” said Sarah Martin, Dodge’s associate director of forecasting. “Dodge remains optimistic that non-residential planning will remain elevated throughout 2024 along with increased confidence in market conditions in 2025.”

Diving knowledge:

Weaker office and health planning limited non-residential planning in February, but most other categories showed growth during the month, Martin said.

That should continue to improve, especially if the Federal Reserve decides to cut rates in the second half of this year, Martin said. Federal Reserve Chairman Jerome Powell recently said he expected that The Fed will start cutting borrowing costs sometime this year if price pressures remain on a steady downward trend.

Until then, commercial planning, which includes office, hotel, retail and warehouse space, will likely continue to drag down overall construction activity, according to Dodge. On the institutional side, which includes education, life sciences and health, planning was flat in February.

Annually, global planning levels grew 1% through February 2023. The commercial segment was down 10%, while the institutional segment was up 27% over the same period, according to Dodge.

Architectural billings fall for 12 consecutive months

Together with the DMI, the Architectural Billing Index, a leading indicator of construction work over nine to 12 months, remained slow to start in 2024according to the most recent data from the American Institute of Architects.

Billings for architecture firms, which start their work before actual construction, have now declined for 12 months in a row. This is the longest period of decline in bills since 2010 to 2011, although the pace of this decline is slower, according to the ABI.

However, inquiries about new projects continue to grow. While not a sign of immediate growth, this indicates that customers remain interested in new projects, but are not yet ready to commit to them, according to the report.

This upbeat but noncommittal stance was echoed in comments from a southern design firm specializing in commercial and industrial planning, which said its work was steady but markets were moving due to high cost of capital, another indication that homeowners may be waiting for expected interest rate cuts before pulling the trigger on jobs.

A total of 17 projects valued at $100 million or more entered planning in February, according to Dodge. Major commercial projects include:

• The $220 million QTS data center in Fort Worth, Texas.
• DOT’s $150 million traffic maintenance facility in Boulder, Colorado.

The largest institutional projects to enter planning included:

• The $348 million Island Parkway Life Sciences Campus in Belmont, California.
• The $304 million New York Presbyterian Cancer Center in New York City.