with Taylor St. Germain


How has commercial construction been performing in 2024 so far? Tune in to a new episode of TrendsTalk with host Taylor St. Germain as he provides an overview US Private Nonresidential Construction data and discusses what can be expected for different segments of commercial construction moving forward.


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Taylor St. Germain


Taylor St. Germain

As an experienced economist, Taylor St. Germain provides consulting services for small businesses, trade associations, and Fortune 500 companies across a spectrum of industries. His dynamic personality and extensive knowledge of economic trends and their business relevance are highly valued by clients and colleagues alike.

“Join me on the TrendsTalk podcast to explore the world of economics. Episodes offer insightful discussion and expert interviews. We cover relevant economic concepts in an accessible way. Whether you are a curious layperson or an industry professional, TrendsTalk is your go-to source for thought-provoking analysis and a deeper understanding of the economic forces shaping our world.”

Key Episode Takeaways

  • 0:42 – US Private Nonresidential Construction data overview
  • 1:24 – Slowing rate of rise in commercial construction
  • 2:22 – ITR Economics knew this slowdown was coming
  • 3:23 – US Commercial Real Estate Occupancy Rate is a leading indicator for commercial construction
  • 4:23 – Other important indicators for commercial construction
  • 5:35 – Some commercial construction verticals will soften
  • 5:58 – Office construction overview
  • 7:06 – Which construction segments will be up in 2024?
  • 7:53 – Private Manufacturing Construction overview
  • 8:41 – Takeaways and actionable advice
  • 9:25 – Summary and conclusion

The below transcript is a literal translation of the podcast audio that has been machine generated by Rev.

Hi, everyone. My name’s Taylor St. Germain with ITR Economics, and thank you for joining me on this episode of TrendsTalk. We at ITR are your unbiased and apolitical source of economic intelligence, and today I wanted to talk commercial construction. The last time we discussed commercial construction, or non-residential construction, was back in January, so I thought it was a important time to give an update, especially as we’ve seen a major business cycle transition in the data as of late.

So when we think of commercial construction, we are often referring to the macroeconomic series, which is US private non-residential construction. As we sit here today, most of our non-residential construction or commercial construction data sets are quite positive in terms of looking at growth rates year over year. But as I just mentioned, we’ve passed through a major inflection point in the commercial construction industry. What I mean by that is if you’re looking at US private non-residential construction in terms of its annual growth rate, we’ve just passed through a peak in the growth rate.

So I want to be very careful here, we’re not talking about decline coming in the commercial construction industry, at least not in the next couple of quarters, but what I am referring to is a slowing rate of rise. So that growth rate peaked and we’re starting to see that growth rate slow down or work its way back down towards zero in terms of when you’re looking at the overall business cycle in terms of that annual growth rate. So again, I’m not talking about imminent decline in commercial construction, I’m talking about an imminent transition from accelerating growth to slowing growth, and that’s really going to characterize the majority of 2024. But as we look at submarkets, sub-segments of commercial construction, there are some markets that are poised to contract year over year in ’24 while others will just simply slow down. So I wanted to talk about that today.

Now again, from a very high level, we knew this slowdown in commercial construction was coming, and one of the ways that we know that is of course our leading indicators, and so I wanted to call out a few of them here for you. If we look at the housing market, so US single family housing starts, and we correlate that to the commercial construction industry, or US private non-residential construction, we see that the housing market has about a 24-month lead time compared to commercial activity. And as many of you likely know, but for those who don’t, the housing market has gone through quite a bit of pain over the last two years, and so one of the indications that we received that commercial activity will be slowing down is the fact that the housing market has slowed down and contracted throughout the past few years, so that 24-month lead time that housing has to commercial construction is really important in terms of understanding the future direction.

Now, there’s another great indicator with a lead time that’s telling us a slowdown in the pace of growth for commercial construction is coming, and that is the US commercial real estate occupancy rate. So we take the annual growth rate for US private non-residential construction, and we look at its relationship to the three-month moving average of US commercial real estate occupancy. And what we’ve seen is that that three month moving average has also slowed and even contracted as of late. So to see fewer folks taking advantage of our commercial real estate and really seeing occupancy rates decline is what that means, that’s an indication that commercial activity will be slowing down here in the future. So we have multiple leading indicators, I just called out my two favorites, that are very clearly, in terms of their relationship, suggesting that this continued slowdown in commercial construction is coming.

There’s other indicators as well that are very important to us in terms of understanding the future for commercial construction, and that’s looking at architecture billings data. So architecture billings data is reported as a diffusion index. So any value above 50 would signal growth, any value below 50 would signal contraction. So if we’re looking at all of the major regions of the US, most of those regions are displaying an architecture billings value of below 50, meaning that architecture billings numbers are contracting, and that is typically a great leading economic indicator for where commercial construction is headed. Now, the Midwest is the only region where architecture billings is actually still above 50, so it seems like the Midwest is hanging on, but every other region in terms of the architecture billings data is showing us signs of contraction. Now again, these are leading indicators, so that means in the future as we look out over the next 12 to 18 months, depending on which architecture billings data set you’re looking at, it signals that there’s some softening in the commercial market coming our way.

But again, it’s important to note that in 2024, some commercial construction verticals will simply just soften. You’ll just see that growth rates slow down, but still we’ll see the markets grow year over year. However, there are some areas of concern in 2024 where some verticals will actually contract. So let me call out a few of these for you.

I think we need to talk about office construction first and foremost. When we look at private office construction here in the US, we’re dealing with a new reality as we come out of the pandemic and post-pandemic times. And so when we look at office construction, that is one of those series in 2024 that we do expect to decline in terms of year over year. Right now we’re projecting office construction down about 5% in 2024 compared to 2023. High office vacancy rates, you’re seeing a shifting in the overall footprint of these office buildings, and we’re still dealing with some pretty significant borrowing costs in terms of where interest rates are as we sit here today. So those factors contributing to our thought process, which is that we will see contraction in office buildings construction. We also see contraction coming in, multi-tenant retail construction, and private warehouse construction. So those are the three commercial verticals that we highlight in the trends report that are all expected to be down year over year in 2024 compared to 2023.

So you might be saying now, “Okay, Taylor, well, what segments will be up in ’24?” And that’s education construction, hospital construction, manufacturing construction, and public water and sewer facilities construction. Again, you can see this right in our trends report if you take a look at the construction at a glance section of the trends report. So those markets will see weaker growth rates by the end of the year than where we’re sitting at here today, but still positive year over year. So it’s important to note that it’s not a linear projection for the entire commercial construction industry, there are some markets that will be up and there will be some that will be down in 2024 again compared to 2023.

I did also want to call out private manufacturing construction. That is the data series that is performing the best in terms of all of these manufacturing verticals, and some of that is due in part to the on-shoring reshoring trend here in the US in the demand for new manufacturing construction as we see a lot of these supply chains come back on shore. That growth rate for private manufacturing construction is at 68.2% as we sit here today. And yes, we do see that growth rate slowing down throughout 2024, but still up 11.1%. So you can see there’s a lot of building here in the US as the supply chains come back on shore, as we have a lot of demand for US manufacturing moving forward.

So again, the takeaways from this conversation are don’t linear budget as you look at 2024 compared to 2023, acknowledge that we hit an inflection point and that the pace of growth in commercial construction activity is slowing. Again, we’re at the peak of a growth rate cycle and everyone feels good when you’re at the peak of a cycle in terms of growth rates, but the biggest mistake we could make is assuming that those growth rates will continue to accelerate into 2024. Find those vertical markets that are expected to perform better than others in 2024 and focus your efforts in those areas. Again, I called out several of those here today.

Overall, it’s a slowing year for commercial construction in 2024. There’s some opportunities, some areas of weakness, and that’s where we come in to help. Check out that ITR Trends Report for more information on these data series that I mentioned today. I certainly hope you found this information helpful, please remember to like and subscribe to TrendsTalk wherever you listen to your podcasts, and I’m looking forward to seeing you all on the next one.