Downturn Comes for the Nonresidential Construction Sector

Nonresidential construction markets were broadly booming in the summer of 2024, and some folks found our forecasts for weakness later in 2024 and in 2025 difficult to believe.

A client recalled this about our summer webinar with them: “I think we were all on the same page when we came out of the last one... We were all thinking, ‘These guys don’t know anything about what they’re talking about.’”

They came around.

“We’re feeling the slowdown now,” the client said. “We’re seeing a lot of holding positions, a lot of ‘later next year’s, that sort of thing.”

• All seven of the key nonresidential construction markets we cover in the Trends Report™ – from school construction to shopping center construction to factory construction – are on the back side of the business cycle, i.e., in either Phase C, Slowing Growth, or Phase D, Recession.
• Of those in Phase C, all will likely get (or are getting) at least a taste of Phase D, which we also refer to as a “hard landing.”

Our Trends Report subscribers will know what the tough markets are – we are talking about double-digit rates of year-over-year decline. In the meantime, we thought we would share some intelligence about relative opportunities – a “treat” on this classic autumn holiday.

US Private Manufacturing Construction, which includes the construction of facilities that make goods – durable, disposable, mechanical, electrical, electronic, complete, incomplete, etc. – is headed for decline throughout 2025. However, that decline will be mild. The chart shows that the market, bolstered in recent years by government spending in the tech industry and semiconductor manufacturing initiatives, should be able to withstand some decline.

While opportunities will be lesser next year versus this year, they will be relatively plentiful compared to the last 20 years.

However, make sure you are looking in the right manufacturing markets.

• Some of our clients are reporting less profitability associated with facility projects in mature markets (think traditional commodities).
• We are hearing about greater opportunity in technology-related fabs.
• If you can find an avenue into this tech area, you will likely be better insulated against the headwinds that 2025 will bring to the broader nonresidential construction market.

Speaking of tech, data centers continue to offer opportunity. Unlike other nonresidential markets, US Private Data Construction continues to accelerate in growth.

• The year-over-year growth rate is at a whopping 58.5%.
• The 3/12, which compares the most recent three months of data this year to those same three months of last year, is even higher, at 61.2%.
• The market is relatively large, at an annual $24.8 billion as of August.

Other areas of projected mild decline:

• Decline is on the horizon for US Total Education Construction, but we do not expect the 12MMT to decline significantly past the current level.
• We also expect that decline in US Total Hospital Construction will be mild, with the market trending stronger than the pre-COVID norms.

Timing Is Everything

Our nonresidential construction spending data is put-in-place, meaning that the spending makes it into the data as it occurs, rather than when a major contract is signed or a project is greenlit. Depending on your company’s position in the “economic train,” that might mean that your bookings associated with a planned construction project will come in before the put-in-place spending manifests in the nonresidential construction data.

In other words, you may lead nonresidential construction spending.

That is why you’ll need a forecast to take full advantage of any opportunities.

That is where we can help.