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Under AI’s expansion, some economists are finally seeing signs that traditional construction is making a comeback.
Although the latest batch of economic data still shows that data center and electrical infrastructure took much of the momentum of the sector in March and April, the commercial and traditional centers office projects have quietly gained momentumaccording to construction economists.
“Year after year falls in construction spending for non-residential sectors it appears to be moderating,” said Juan Arias, national director of US industry analysis at CoStar, a commercial real estate services firm based in Arlington, Va. “Non-residential spending is down a little more than 2% from a year ago. However, this is an improvement on the more than 4% annual contraction seen a year ago.”
Although activity is starting to pick up in more places, however, contractors are still wary construction costssaid Adam Raimond, director of cost index programs at Gordian, a Greenville, South Carolina-based construction data provider. Fuel and metal prices have risen, and economists expect another wave cost estimation in the near future.
“Obviously, there’s the increase in gasoline and fuel costs that have some direct cost impacts. But on top of that, metals costs continue to rise further,” Raimond said. “It is likely that in the second half of the year, the fuel crisis will also take its toll on the costs of other material sectors.”
So far, price increases have done little to deter data center creation. Spending on those projects increased more than 34 percent year over year, Arias said. The boom has also fueled demand for substations and surrounding electrical equipment.
“The acceleration in power infrastructure spending stands out because it is tied to data center history and will likely continue to increase as new data centers come on stream,” Arias said. “Data center growth is impacting capacity utilization and industrial production for electrical component manufacturers. As demand for goods from these grid-connected players increases, electrical construction spending will likely continue to grow.”
Other types of projects, such as warehouse and multi-family construction, are seeing more slow recoveryArias said. Appreciating the costs of these projects can completely hinder progress.
“Construction costs are likely to continue to rise,” Arias said. “If we see increased demand from contractors and suppliers from other sectors, that will increase the pressure on construction costs.”
