Why contractors are still on manufacturing projects

Since reaching record highs in May 2023, the manufacturing construction boom has shown signs of fading.

While manufacturing construction activity today still exceeds pre-2022 levels, starts in the industry have begun to decline, according to the Dodge Construction Network. This led The Wall Street Journal to question whether segment has fallen into a slump.

But while these signs could portend weakness ahead, most contractors have remained unfazed.

“The manufacturing construction sector is very busy, and based on discussions with our clients, we don’t expect to see a slowdown anytime soon,” said Andrew Ahrendt, national director of manufacturing for PCL Construction, a construction company based in Edmonton, Alberta. US headquarters in Denver. “We’ve barely scratched the surface.”

General contractors in the space insist they don’t feel a downturn. In fact, they still foresee an acceleration of activity in the near term.

For example, along with PCL, JE Dunn plans to stay busy with manufacturing jobs through 2024. The Kansas City, Missouri-based company will deliver Dongwha Electrolyte’s first project in North America, a $70 million electric vehicle battery production facility in Clarksville, Tenn., as well as a $425 million manufacturing facility for Georgia-Pacific’s Dixie brand of consumer goods.

“We continue to see demand in the market for large capital projects and our counterparts in the architectural and engineering firms remain busy with new project inquiries,” said Brent Strength, senior vice president and manufacturing market leader at JE Dunn . “Manufacturing construction in 2024 should outpace 2023. Contractors have a good backlog from previous years, and a lot of Deinflation Act, CHIPS Act and similar dollars are being spent right now.”

Chicago-based Clayco also expects to stay busy with advanced manufacturing construction this year. The company has recently won awards for building Rivian’s $5 billion electric vehicle plant in Stanton Springs, Georgia, as well as Entek’s $1.5 billion manufacturing campus in Terre Haute, Indiana.

“I think definitely the advanced manufacturing segment continues to see significant investment, and I think it’s going to continue to expand at very high rates through 2024,” said Anthony Johnson, president of the Chicago-based Clayco industrial business unit. construction company with headquarters. “We’re going to see an increase in more capital projects in 2024 than last year.”

The themes of 2023 live on

Despite the optimism, contractors working in the manufacturing space also face specific challenges.

Robust manufacturing begins in 2023 stretched terms of acquisition of many materials at all levels, i.e. microchips, HVAC equipment, electrical appliances and manufactured millwork. In addition, countries in Asia and elsewhere produce many of the essential materials used in EV battery technology, such as copper and nickel, Strength said.

This could slow progress, as integrating this equipment into US building codes and standards requires a uniquely qualified design and construction team. Problems with procurement and adherence to U.S. code for building electric vehicles, especially for early-stage builders, can add months to the overall project life-cycle timeline, Strength said.

“Delivery times for key equipment remain an issue that we spend a lot of time mitigating,” Strength said. “Speed ​​to market remains a priority. It’s critical to work with a company that understands how to plan and meet these challenges.”

However, flattening interest rate hikes, lower inflation and increased consumer strength should help bolster activity in 2024, Johnson said. He added that while there is still some uncertainty, the US is in a much more controlled place this year in terms of inflation and interest rate hikes.

“I think all those stars are aligning to help provide a little bit of a tailwind,” Johnson said.

Occupational diseases

In 2023, builders built numerous single-phase projects. This year, Johnson expects a similar second wave of related projects to begin.

Additionally, for companies that experienced delays in finalizing their planning, financing or purchase agreements in 2023, those projects are likely to start this year as well. For example, 16 manufacturing projects worth about $8 billion had their target start dates from late 2023 to 2024, said Richard Branch, chief economist at Dodge Construction Network.

This will amplify an already deep-rooted challenge in the industry.

“In 2023, there was definitely a squeeze on craft labor in the United States,” Johnson said. “That’s only going to get worse this year because you have this wave of projects, similar to what you had in 2023, but now you also have a whole new wave starting this year.”

Notable projects that were delayed last year include Scout Motors’ $2 billion plant in Blythewood, South Carolina, and American Battery Factory’s $1.2 billion factory in Tucson, Arizona.

“I think there are some risks here, particularly because access to labor could undermine that forecast,” Branch said. “This comes at a time also when demand for electric vehicles appears to be slowing.”

TSMC recently pushed back the production schedule at its second factory from 2026 to 2027 or 2028, due to a shortage of skilled workers and challenges in securing US government funding, according to Chairman Mark Liu. The company had already postponed production at the site’s initial factory from 2024 to 2025.

Still, many projects funded with tax credits from the Inflation Reduction Act are already in the design phase and are likely to continue moving forward as supply chains have already pivoted to rely on these new models, Ahrendt said. . That momentum will keep general contractors working in the space busy for the foreseeable future, Strength said.

“The pace and amount of capital investment can ebb and flow,” Strength said. “But we think the momentum will continue to move in a positive direction in the coming years.”