2024 Midyear Construction Update

At the onset of 2024, the construction industry as a whole seemed well positioned. Many contractors maintained comfortable backlogs emerging from the pandemic related boom, supply chain constraints eased somewhat, and material costs stabilized. However, concerns with labor shortages, insurance procurement, among others appeared to be issues which would continue to impact the industry early in the year. Now that we have passed the halfway point of 2024, this article provides a mid-year update and forecast of the construction industry and discusses concerns to be mindful of as we close out 2024.

Spending Forecast

According to the American Institute of Architects (AIA), with the exception of certain key categories, billings at architecture firms, which is commonly viewed as an indicator of near term construction spending, has been on the decline with multifamily residential seeing the largest declines in billings. However, despite these overall declines, institutional spending has remained somewhat steady. Dodge Construction Network predicts projects related to educational and healthcare facilities are expected to see the greatest starts throughout the remainder of the year and into early 2025. From a commercial standpoint, although general commercial and retail spending remains somewhat weak, warehouse spending has moderately increased along with spending on data center construction likely due in part to the recent increased push in artificial intelligence.

Labor

Although the industry has been plagued in the past with securing and maintaining adequate and skilled labor, throughout the first half of 2024, construction employment has seen an increase in hires. According to a report prepared by Jones Lang LaSalle, the construction labor market may be starting to see some signs of normalization. However, despite these encouraging national forecasts, it is still important to take into account the locality of your project and needs when assessing labor availability. For example, labor availability in large urban areas may not match those in other areas of the country. Likewise, although labor may be available, the need for specialized skilled labor may still be at issue.

Material and Supply Chain Constraints Ease

Throughout the first half of 2024, material and supply chain constraints have appeared to ease. That said, despite improvement with overall material lead times, specific demand for certain MEP goods has remained tight likely a result of increased demand for data center construction. However, it is always important to remember that given the uncertainty of consumer demand as well as geopolitical issues and the pending U.S Presidential election, material costs and supply chain issues for new and emerging products may be adversely impacted in the near term especially going into 2025.  

Conclusion

As always, forecasts can never be assumed to be a certainty. Although many industry concerns have eased since the beginning of 2024, and the outlook for the remainder of the year appears bright, especially in the areas of institutional and data center projects, changes in consumer demands and geopolitical headwinds may adversely impact the industry as we closeout the year. Keeping abreast of industry issues is only one step to having a successful project. Assembling the right team early and properly documenting key project requirements in writing will not only help to make your project a success but protect you in the event disputes or claims arise along the way.   

For more information or to discuss any of these topics, please contact Pat Johnson a member of Honigman’s Real Estate Services Practice Group.