Continued high interest rates, labor shortages and lagging commercial office construction didn’t stop some Midwestern contractors from thriving in specific markets in 2023.
ENR Midwest’s Top Starts list was dominated by categories that are seeing megaproject demand: electric vehicle battery production, solar and wind farms, data centers and manufacturing. The cost of work on this year’s list of 33 projects exceeds $19 billion.
Clayco’s $750 million project to build a lithium battery manufacturing facility for Entek in Terre Haute, Ind., reflects where it sees the company’s future going.
“We foresee continued growth in cloud computing and artificial intelligence, including data center growth, the evolution of electric vehicles and related projects along the supply chain, the growth of energy strategies renewable energy and continued investments in infrastructure,” says Anthony Johnson, president of Clayco’s industrial business unit.
Jeff Blaesing, senior vice president and head of JE Dunn’s Kansas City office, agrees that the construction market is currently driven by megaprojects in manufacturing and data centers, but adds that this work is having an effect downstream
Clayco is building a $750 million lithium battery manufacturing facility in Terre Haute, Ind.
Representation courtesy of Clayco
“These projects are affecting the workforce and capacity of trading partners,” he says. “The ramp-up in construction has returned to pre-pandemic levels, but we don’t expect prices to drop. The market is expected to remain strong [in Kansas City]but procurement of certain materials and equipment must be procured earlier in the project life cycle to meet schedule requirements.”
Johnson notes that performance in different segments within the construction and real estate industries are polar opposites, meaning Clayco is witnessing “headwinds in traditional developer-led segments such as multifamily and light industrial, because of high interest rates and construction prices as well.” like smoothed demand,” he says.
Johnson doesn’t expect interest rates to drop much next year.
“We believe the overall economy is more robust than the Fed anticipated, and as such, rate cuts will be delayed until 2025,” he says.
The upside is that interest rates are more manageable and predictable than in recent years, he says.
“We believe the overall economy is more robust than the Fed anticipated, and as such, rate cuts will be delayed until 2025.”
—Andrew Johnson, president of the Industrial Business Unit, Clayco
Like Blaesing, Johnson sees labor shortages and supply chain delays continuing to plague projects.
“Some projects have had slower starts or been delayed, putting more pressure on resources,” he says. “We believe that in 2024 and 2025 more of these projects will increase resource requirements, thereby creating additional regional strains and a national strain. We will continue to see a strain on obtaining electrical equipment with the [increased] demand from data centers and advanced manufacturing projects.”
To mitigate labor challenges, Blaesing says his company uses multi-trade and off-site manufacturing prefabs.
“We will take great care in planning construction schedules with labor analyzes and in-depth facility reviews with business partners to ensure capacity, commitment and support for workforce development programs,” he says.
While projects in urban downtown districts generally aren’t among the costliest in construction costs on this year’s Top Starts list, there is one exception: Mutual of Omaha’s $600 million headquarters , which is being built by JE Dunn in downtown Omaha, was ranked 9th on the list.
Looking ahead, Johnson is looking at macroeconomic events that could affect 2024, including the fact that it is an election year, which may bring a level of uncertainty to markets; the fact that a huge amount of commercial real estate debt will come due in the coming years; and escalating tensions between China and Taiwan, which could affect global peace, multiple economies and the global semiconductor supply chain.
“Despite these potential events, we remain focused on executing well and delivering our clients’ most important and complex projects,” says Johnson.
