Commercial, Institutional Planning End Three-Month Construction Slump

The Dodge Momentum Index rebounded from three consecutive monthly declines that followed a 14-year high in October 2021, recording a 4% increase in February to 158.2, up from the revised January reading of 151.9.

Activity was spurred by—among other things—education and health care projects, a data center in Manassas, Va., and a Chick-fil-A refrigerated warehouse for Chick-fil-A in Hutchins, Texas.

The Momentum Index, issued by Dodge Construction Network, is a monthly measure of the initial report for nonresidential building projects in planning, which have been shown to lead construction spending for nonresidential buildings by a full year. In February, institutional planning rose 9%, and commercial planning moved 1% higher.

February’s increase in the Index suggests that the construction sector continues to weather the storm of higher material prices and labor scarcity and is looking past the pandemic’s unique issues for projects like schools and offices. As the pipeline of projects awaiting groundbreaking fills, a more even and pronounced recovery in construction starts will take hold.

Much of February’s gain was due to a sizable jump in the institutional component, as more education and healthcare projects entered planning. Commercial planning remained solid thanks to office and warehouse projects. 

February Reading an 11% Jump from Year Ago

When compared to February 2021, the overall Momentum Index was 11% higher in February 2022. The institutional component was up 37%, while the commercial component was down 1% on a year-over-year basis.

A total of 22 projects with a value of $100 million or more entered planning in February. The leading institutional projects were a $500 million first phase of the OC Vibe recreation and mixed-use space in Anaheim, Calif., and the $299 million Kaiser Roseville Medical Center in Roseville, Calif.

The leading commercial projects were the $500 million Potomac Technology Park data center in Manassas, Va., and a $175 million Chick-fil-A refrigerated warehouse in Hutchins, Texas.

Rise in Non-Residential Planning the ‘Next Stage’ in Recovery

Alan Hiller is vice president and senior underwriter for Parkview Financial, a direct private lender specializing in ground-up commercial and residential real estate financing. He tells GlobeSt.com that after a rise in residential products, the rise in non-residential planning will be the next stage.

“The nationwide uptick in residential ground-up projects naturally leads to the need for hospitals and medical office space, places to gather, logistics, and office space,” he says. “Many of these projects were delayed by the pandemic. As the world shifts back to normal, non-residential projects that were delayed are seeing new life.”

Architecture Billings Index Remains Positive

Furthermore, he construction industry remains resilient to the challenges caused by supply chain disruptions and labor market constraints, “as indicated by the 4% increase in the Dodge Momentum Index in February,” Nick Grandy, real estate and construction senior analyst with RSM US LLP, tells GlobeSt.com.

Grandy also noted that the Architecture Billings Index (which measures billings by architectural firms and is an indicator of non-residential construction activity with a 9- to 12-month lead time) was at 51 in January, indicating a still positive reading (above 50) and has been above 50 for the past 12 months.

Additionally, design contracts were also positive at 56.1 in January, indicating projects continue to come into architecture firms at a healthy pace, he said.

“Despite the labor, material and supply chain constraints, contractors are looking at the macro-level environment and continue to move forward with projects, as there is a fear that the labor issue has longer staying power,” Grandy said. “Also, as supply chains have been so fragile, they would rather get started in a lower interest rate environment amid expectations that the Fed will increase rates quarterly through 2024.”