Forecasters expect shifting construction demands in 2024
Lingering impacts of the 2023 economy combined with growing activity in select markets could produce both surges and slowdowns in construction activity in 2024.
Despite signals that the Federal Reserve will cut interest rates in 2024 and the American economy will achieve a soft landing, economic and construction activity is not expected to experience a sharp, widespread rebound.
“Interest rates remain quite high for now and credit conditions have meaningfully tightened in recent months… Also, many banks have said they are not really that keen on further exposure to real estate,” said Anirban Basu, CEO of Sage Policy Group. “With project financing more difficult, many contractors will find diminishing demand for their services. Some will be scrambling for work, perhaps by the end of 2024, as their current backlog runs out.”
The Architectural Billings Index is already signaling a slowdown on the horizon, Basu said. In recent months, the index has neared multi-year lows.
At the same time, construction spending has posted healthy growth. Nonresidential construction spending rose 18.1 percent in 2023, according to Basu’s analysis for Associated Builders and Contractors. Manufacturing construction spending surged 59.1 percent. Publicly funded construction – including highways and streets, water supply and sewage/waste disposal – climbed from 15.3 percent to 26.6 percent each. Certain private sectors – especially education, healthcare and power construction – also posted impressive growth.
That mix of indicators, Basu said, “means the central story for Maryland construction in 2024 will be disparity among contractors” with companies’ backlogs rising or sagging depending on which sectors they serve.
MacKenzie Contracting Company expects to see its workload remain roughly the same in 2024, said Autumn Hill, Vice President of Business Development. “We expect to face the effects of rising interest rates and high inflation as architectural billings have taken a downturn. We foresee most of our revenue coming from healthcare, senior living and retail projects.”
“What we see in 2024 is a little more stability,” said Camilo Garcia, Business Unit Leader at DPR Construction.
The commercial construction sector remains soft except for offices and secure facilities for government contractors, Garcia said. However, clients in other sectors are preparing to start new projects, especially for higher education buildings, healthcare facilities, life sciences research facilities and data centers.
“We are seeing more interest and opportunities with mission critical data center projects in Maryland, Frederick as an example that has been in the news lately, due to the power constraints in Northern Virginia,” Garcia said, adding that the construction industry is only beginning to understand the potential impact of the rise of artificial intelligence on data center demand.
Although the rise in manufacturing construction has focused more on Midwest and southern states, Maryland could see increased needs for highly technical manufacturing facilities, especially for medical devices and other life sciences products, he said. The greater Baltimore region was recently designated as a federal technology hub for AI and life sciences. Advocates for the hub are now seeking more than $40 million in federal funding for infrastructure development.
Ron Michael, President of the Maryland Chapter of the National Electrical Contractors Association, sees a “tsunami” of work coming in 2024 from data center, higher education, healthcare, government and infrastructure work.
“A lot of infrastructure projects were put on hold last year, pending decisions on whether they were going to get any money from the federal infrastructure package,” Michael said.
Many government-watchers expect those long-awaited funding announcements to happen in the runup to the federal election and many shovel-ready projects to quickly begin.
Other delayed projects for higher education clients and others “are also back on the front burner,” Michael said. Three rail tunnel projects — two in Baltimore and one in Ellicott City — are looming. Massive renovations of both Oriole Park at Camden Yards and M&T Bank Stadium are moving forward.
At Fort George G. Meade, East Campus Building 4 (ECB4) was delayed but now “is one of the largest electrical jobs happening in the region,” Michael said. In addition, the government is moving forward on Building 5 before ECB4 is completed “so those projects will run concurrently for some time. These are jobs that take hundreds of electrical workers each and I’m not sure they are going to be available.”
“I don’t see how we are going to support all of this construction in Baltimore,” Michael added. “Once all of these jobs start, there will be no labor available in Baltimore in the electrical trade and other trades too.”
Labor shortages, along with ongoing supply chain challenges, will be the two largest challenges facing the construction industry in 2024, Hill said.
“Labor shortages could intensify, impacting construction timelines and driving up wages, which can hinder industry growth in 2024,” she said.