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2024 Construction Market May Slow Down Some But Solid Opportunities Remain

Nov. 17, 2023

To get a sense of the market climate electrical distributors, reps and manufacturers and other electrical professionals can expect in 2024, let’s take a look at the core segments that will provide many of the business opportunities: the residential and industrial markets, office and mixed-use construction, hospitals, data centers, schools and universities, renewables and the utility market.

A SMALL REBOUND IN RESIDENTIAL BUSINESS
Unless electrical contractors get involved with home construction in some of the hottest housing markets in the country, which tend to be in the Sunbelt and Intermountain states, the residential market may be one of slower business segments in 2024. It probably won’t get much better real soon, unless mortgage rates drop to more tolerable levels for first-time homebuyers. Although the National Association of Home Builder (NAHB) (wwwnahb.com) expects single-family housing starts to increase +4.6% in 2024 to 946,000 permits after a cumulative decline of -21.2% over the past two years, the recovery is likely to be quite slow in all but the most robust housing markets. These markets include Houston, Dallas, Atlanta, Phoenix, Charlotte, Orlando, Austin, Nashville, Tampa and Jacksonville, the nation’s Top 10 housing markets through Sept. 2023 when measured by single-family building permits. Together, these metropolitan areas combined for 102,562 single-family permits – 26% of all permits pulled by builders nationwide.
NAHB believes multi-family permits are headed for their second annual double-digit decline in 2024, with a -12.3% drop to 413,000 permits. Through Sept. 2023, the New York metropolitan topped all other markets with 21,415 permits for buildings with five or more units, followed by Dallas, Austin, Houston, Phoenix, Los Angeles, Miami, Atlanta, Washington, DC and Nashville. Multi-family permits tend to be consolidated in a handful of metropolitan areas, and that was the case again in 2023 as these 10 markets and their 138,750 permits accounted for 35% of all multi-family permits with 5 units or more through Sept. 2023.
You hear a lot about the potential of vacant urban office buildings being converting into apartments or condos, and while this sounds good in theory, these conversions can be quite expensive because of the major upgrades and retrofits often needed for plumbing, HVAC, windows and other building systems. A Nov. 6 article in the Wall Street Journal said an analysis by www.RentCafe.com showed that in 2022 developers created just 3,575 apartment units in the U.S. through office conversions — less than 1% of all new apartments built last year.
While the overall residential market may be slow in all but the hottest homebuilding markets, electrical vehicle charging systems will still provide good service business opportunities and in many local markets are supported by enticing utility rebates.

 

THE GOOD TIMES ARE ROLLING IN THE INDUSTRIAL MARKET
For industrially oriented electrical contractors in the market areas where new semiconductor fab plants, electric vehicle or EV battery plants are being built, these may one day be remembered as the good old days. Supported in part by truckloads of federal financial incentives, megaprojects are being built throughout the Midwest, Southeast, Texas and Arizona. Several projects that broke ground in the most recent months include the $2-billion Vinfast EV factory in New Hill, NC; the $1.2-billion American Battery Factory plant in Tucson, AZ; and the $400-billion ICL EV battery plant in St. Louis, MO. Many more are underway.
Construction of these facilities has powered some truly impressive gains in the Census Dept.’s construction spending data, with the Manufacturing category up +62.5% through Sept. 2023 to $198.5 billion, and the Computer/electronic/electrical sub-category up +134.9% YOY to $111.1 billion. When you consider that electrical work accounts for 10% of the typical construction jobs, these trophy jobs will continue to provide plenty of lucrative business for electrical contractors in 2024.

 

OPPORTUNITIES REMAIN IN OFFICES
The office construction market’s woes from the COVID-inspired work-at-home movement are well-known, and the acres of vacant office space in see-through buildings in suburban office parks and downtown office towers isn’t going to get filled anytime soon. While more companies are insisting that employees come to the office at least three days a week, many are still downsizing their office spaces. In many urban areas, office occupancy is hovering around 50%, according to the Kastle Systems Back-to-Work Barometer, which tracks security card swipes in 21,600 buildings throughout 138 cities. Vacancy rates for office buildings are hovering around 16% nationally — a level EM’s editors haven’t seen on the national level in many years.
Two reasons exist to be optimistic about this market segment. Class A office space — new and in need of a retrofit — is faring better than your basic run-of-the-mill office space. And when companies downsize, and move into smaller spaces, electrical modifications are usually needed. These blue-chip offices are often outfitted with upscale lighting, VDV, security and building control networks.
The office construction numbers also appear to be headed in the right direction on a macro-level, because the Census Dept. data says private construction spending on new offices year-to-date through Sept. 2023 was up +7.1% YOY to $84.5 billion.

 

DOWNTOWN RENOVATION & LIVE-WORK-PLAY DEVELOPMENTS
Across America’s suburbs and in many cities, mixed-use construction projects that incorporate multi-family housing, retail construction and offices are some of the most visible active construction projects. They are called “Live-Work-Play” (LMP) developments because residents can live close to their offices and shop at nearby stores and enjoy the amenities of restaurants, health clubs and other services. 
A post at www.chainstoreage.com cited a study by www.coworkingcafé.com that said 72 LWP developments were completed or close to completion by year-end 2022, and that 512 LWP communities were built across the United States from 2012 to 2022. One suburban LWP project that broke ground recently is the $2-billion Meridian mixed-use project in Overland Park, KS, which will feature 4.8-million sq-ft of office capacity; urban living spaces with 2,000 apartments, two hotels; and retail, restaurant and entertainment venues.

 

HOSPITAL WORK STANDS TALL
Construction of hospitals and medical facilities was up 15.5% in Sept. 2023 to $62.3 billion, according the U.S. Census Dept.’s value of construction put-in-place data. Private hospital construction and construction of private medical buildings was up +21% during this time period. Electrical Marketing’s database of construction projects lists 18 hospital projects valued at $100-million or more that entered the planning stage or broke ground in 2023. The largest of these projects is the $1-billion St. Jude Children's Research Hospital clinic & office towers that filed for construction permits in Feb. 2023.

 

DATA CENTERS – THE GIFT THAT KEEPS ON GIVING
As the use of artificial intelligence (AI) expands, the need for new or upgraded data centers to handle this new application is expected to increase substantially. That’s great news for the electrical market, because these facilities are loaded with electrical equipment. In northern Virginia, which has more data centers per square mile than anywhere else in the country, 6.7 million sq ft of new data centers are under construction that will need a combined total of 665MW, according to a JLL research report. JLL also says 45 million sq ft of data centers are planned in the area and that they will require 4,500MW. Electrical Marketing’s editors found 16 data center projects valued at more than $100 million underway or in the planning stages in 2023. At least five of these projects topped $1 billion in total contract value — the DC BLOX data center campus in Douglassville, GA; Microsoft data centers in Mount Pleasant, WI, and Rome, GA; and the Prime Data Center campus in Elk Grove Village, IL. 

SCHOOLS & UNIVERSITIES
GET DECENT GRADES
The long-term potential of educational construction is a bit tougher to analyze than some other segments because of conflicting data. While the Census Dept.’s data for total educational construction (public/private K-12 and college & universities) shows a +18.8% YOY gain through Sept. 2023 to $118 billion, the long-term national enrollment numbers send out some warning signals about potential future demand. For instance, pre-K to grade 12 public school enrollment is in the middle of a steady decline since 2019 and is expecting to continue dropping through 2030 from a recent high of 50,796,445 to 46,889,642 students ( -7.7% decline), according to the National Center for Education Statistics (www.nces.ed.gov). While the NCES data for this period doesn’t show a similar decline for enrollment at public colleges and universities, over the next few years this data shows enrollment topping off at about 16.8 million, a -7% decline from the 18-million level it hit in 2010 to 2011.
Despite these forecasts for enrollment declines, plenty of sizeable projects are still in the pipeline. The Austin, TX, school district is planning a $2.4-billion modernization; UC San Diego in La Jolla, CA, broke ground for a $1-billion, 2,400-bed residential village and student center and is planning a major expansion of its Science Research Park; and Harvard University got financing approved in June 2023 for the first phase of its Enterprise Research Campus in Allston, MA, across the Charles River from its main campus.

 

RENEWABLES READY FOR MORE GROWTH
While onshore wind installations are down significantly because of borrowing costs for development loans and supply chain issues, as a whole the renewables industry should be strong. According to the latest data available from American Clean Power (www.cleanpower.org), installation of solar, wind and battery power increased +13% in 3Q 2023 YOY. American Clean Power said the 5,551MW of utility-scale clean power will be enough to power 813,000 homes.
Both the onshore and offshore segments of the wind industry have hit a rough patch. American Clean Power said only 288MW of onshore wind power was installed through 3Q 2023, a -77% YOY decline. The U.S. offshore wind industry, which currently only has two installations fully operational, was recently rocked by the news that Orsted, one of the world’s largest offshore wind developers, is pulling out of its 1,100-MW Ocean Wind 1 and 1,148-MW Ocean Wind 2 projects off the coast of New Jersey. However, you can still expect offshore wind farms to generate some sizeable electrical construction work in new port facilities to handle the logistics of shipping equipment out to the wind farms; new factories manufacturing some wind turbine components; and training facilities for wind industry workers. New York will be home to these construction projects, as the wind farms off its coast ramp up. In addition, some U.S. shipyards currently have contracts to build specialized ships for transport of materials and crews to the offshore wind farms.
Despite the overall slowdown in wind farm construction, some sizable solar and wind projects are underway. The $813-million Bellefield solar farm and storage battery project in California City, CA, broke ground in July 2023; Texas will be home to the $540-million Merit Gulfstar solar farm in Wharton County and the $530-million Mockingbird Solar Center in Brookston; and Wyoming has two large wind projects underway — the $738-million Rock Creek wind farm in Laramie, and the $525-million Cedar Springs wind farm in Converse County.

 

UTILITY MARKET WILL POWER SALES
The expansion and modernization of the U.S. electrical grid is already huge business. But with the big money flowing into this market segment to meet the demand for more electrical power and to bring new utility-scale renewable resources online, it's going to get even bigger. New long-distance transmission lines tend to be multi-billion-dollar projects, and the new substations required for utility-scale solar or wind farms or battery storage facilities are also big contracts. The U.S. Census construction data says the new construction in the electric power segment increased +14.8% YOY to $89 billion through Sept. 2023.
Quanta Services, Houston, which focuses on utility work, is bullish on the future. In the release announcing Quanta’s most recent financial results, Duke Austin, the company’s president and CEO, said its total backlog at the end of 3Q 2023 reached $30.1 billion (an all-time high for the company) and indicates momentum for 2024 and beyond.
While next year's construction market may call for slower growth, individual market sectors like industrial and data centers and  specific regions of the country like the Southwest will do much better than the anticipated low single-digit growth.