4 charts break down winning, losing sectors in 2024

Among many challenges, the rising cost of materials and labor hampered construction activity in 2023. Economists — worried about rampant inflation — even labeled some building sectors as “recessionary.”

In response, the Federal Reserve raised its benchmark interest rate four times. While those hikes effectively brought inflation down from its peak, heightened lending standards and subsequent issues with financing on construction projects worsened as the year progressed.

That affected many projects across the country over the past 12 months, especially on privately led developments. For example, Shopoff Realty Investments paused construction on its approximately $550 million Las Vegas Dream Resort in March due to construction financing issues. In November, the Clark County, Nevada, Zoning Commission axed a separate $5 billion entertainment complex in Vegas due to financing issues.

Nevertheless, as the new year begins, it’s evident that certain types of construction will enjoy a surge in activity throughout 2024. On the flip side, some sectors continue to grapple with challenges that are likely to persist over the next 12 months. Below are 2024’s winning and losing construction sectors:

Winner: Factories

A powerhouse ever since the pandemic accelerated America’s onshoring effort, manufacturing construction will continue its hockey-stick trajectory in 2024.

Anirban Basu, chief economist at Associated Builders and Contractors, said larger contractors should continue to benefit from a “bevy of megaprojects around the nation.” Meanwhile, Didi Caldwell, president and CEO of Global Location Strategies, a Greenville, South Carolina-based business consulting and services firm for manufacturers, labeled the onshoring trend a “once-in-a-lifetime” event.

Starts in the sector, which include multibillion-dollar electric vehicle battery plants and 1,000-acre semiconductor factories projects, hit $97 billion in 2023, according to Dodge Construction Network. That ranks as the second largest amount of investment in one year over the past 15 years. Only 2022, which set the all-time record at $102 billion, posted higher activity.

But this year is on track to be even bigger. Dodge forecasts $112 billion in investment in the sector for 2024, a potential record amount of activity, said Richard Branch, chief economist for Dodge Construction Network.

“The good side of the market here is we are starting to see chip demand pick up, semiconductor sales are starting to rise,” said Branch. “That’s a good sign after a year or so of softness in the market.”

Winner: Bridges and roads

Beyond manufacturing, roadway construction could really get rolling in 2024.

About 63%, or nearly $400 billion for over 400,000 projects, of infrastructure funding has thus far been announced since President Joe Biden signed into law the Infrastructure Investment and Jobs Act two years ago, said Branch.

But that doesn’t mean there’s just 37% of funds remaining to spur construction activity. Announced funding, which is captured from agency press releases, is preliminary and non-binding, whereas awarded funding represents actual obligations, according to the White House.

“We have not seen that announcement move all the way through the allocation, or [be] spent yet,” said Branch. “One of the big assumptions we made way back in 2021 was that 2023 and 2024 would be the best years for growth and infrastructure. I think there’s reason to believe, though, that that can maybe be more like 2024 and 2025.”

One reason why is because material prices remain high. With the focus on inflation in 2022 and 2023, local and state planners may have opted to slow activity until later in 2024, where they could benefit from more favorable pricing conditions.

“Data is still out on that one, obviously, but I wouldn’t be surprised if stronger growth gets pushed out,” said Branch. “That means by the midpoint of [2024], we should start to see acceleration in the forecast. Essentially, what the models are doing here is just pushing the growth out.”

That leaves a lot of runway for bridge, highway and street construction. Dodge pegs project starts for streets and highways to grow 23% in 2024, and another 25% growth in bridge construction, totaling about $147 billion worth of activity in these sectors.

Loser: Warehouses

Not all sectors will increase activity in 2024, however.

High interest rates, supply chain disruptions and strict lending standards dragged down commercial construction for much of 2023. Despite anticipated rate cuts in 2024, Basu expressed doubt regarding the Federal Reserve’s ability to achieve a “soft landing,” or raising rates just enough to stop inflation without triggering a recession. He added he still expects a more significant economic downturn in the future.

“I thought recession would come in 2023,” said Basu. “To me, the question has always been the following — ‘Will this rate hiking cycle engine by the Federal Reserve end in a recession? Yes or no?’ I continue to believe the answer is yes, I do.”

Starts on overall commercial projects, such as retail, office, warehouse and hotel, dropped about 6% in 2023, according to Dodge. In 2024, the sector is expected to tumble another 2%.

Much of that negative outlook is focused on a few sectors within the commercial category.

For example, warehouse starts have entered “structural decline,” said Branch. That slowdown predominantly stems from two major warehouse builders, Amazon and Walmart, scaling back their warehouse construction plans for the foreseeable future. Amazon alone accounts for 16% of the warehouse construction market, according to Dodge.

Nevertheless, there are regional variances in warehouse construction, and the impact of recalibration is not uniform across all markets. Some areas may still experience positive growth despite the overall adjustment.

“I hesitate to call this an economic downturn because if you look at the fundamentals underneath this, vacancy rates are near record lows, they’re heading up, but they’re still very low. There’s a lot of demand for high tech logistics infrastructure,” said Branch. “It’s basically just one player stepping out and that realignment continues into 2024.”

Dodge forecasts warehouse construction starts to reach $44 billion in 2024, an 11% drop from the year before. That negative forecast now marks two consecutive years of contraction, following more than 10 years of growth.

Loser: Offices

Economists maintain traditional office construction likely won’t return to pre-pandemic levels of activity anytime soon, and maybe never will.

In fact, speculative office construction, which means building office space before securing a tenant lease, continues to take up less share of overall office construction work. Once representing about 65% of work by dollar value, those types of project are now much less common compared to alteration-type projects.

Alterations, which include remodeling, renovation or rearrangements of existing spaces, now account for approximately half of total office construction activity, said Branch. That indicates a bleak outlook for new office construction.

Traditional office construction starts will drop 6% in 2024, according to Dodge forecasts. Without alteration projects propping up those activity levels, office construction forecasts would likely be even worse, added Branch.