US Construction Starts Will Start to Rebound Late This Year, Business Analyst Predicts


Posted on April 22, 2020
Warehousing, data center construction among sectors that remain strong during COVID-19 crisis

The headwinds currently facing the US economy will start to abate later this year, with several industry sectors set to rebound strongly as the post-corona world offers new opportunities for growth. And even now, at what may be the height of the crisis, lots of construction projects are in the pipeline across the country. Indeed, there is light at the end of the tunnel. 2021 will be better than 2020, and 2022 will be better than 2021. Those are the main conclusions of Dodge Data & Analytics’ outlook on how the corona crisis will impact US construction starts now, and in the immediate and longer-term future. 

During a recent webinar, Dodge Data & Analytics Chief Economist Richard Branch predicted a sharp but relatively short downturn for US-based construction, with a gradual recovery across most sectors starting late this year. The firm expects US Commercial Constructions starts to return to (near-)normal in Q4, but to be down 16% overall in 2020. He did identify several industry sectors that will grow significantly due to new types of demand. Another ray of light amid the gloom: There are still a significant number of pending projects across the country. Dodge points out that nearly 200,000 projects were in the pre-planning or planning phase by March 30, and as of April 2nd, nearly 17,000 public projects were actively bidding. 

While some sectors are hit very hard – Dodge expects a 33% drop in retail-related US construction this year – the crisis is creating new demand, and new opportunities, in other branches of the economy. Warehousing and data center construction activity seems to be weathering the storm particularly well.

Indeed, what is bad for retail can sometimes be good for warehousing, Branch notes. Some warehouse construction will actually expand as e-commerce fulfillment services, such as Amazon, will need space for more inventory due to an increase in orders and slowing of shipping. This not only creates a need for more warehouse square footage – through new construction and expansion of existing facilities --, the new spaces will also need equipment for sorting, production, distribution, etc. As well as in-building public-safety communication systems. And much more.  

Data Center construction, too, is expected to grow as the new normal creates a demand for more robust systems with increased redundancy and enhanced data security. As with warehousing, new data centers need to be built, and existing ones upgraded and/or expanded. 

Antiquated IT systems, in both public and private sectors, will need to be updated or replaced in order to adjust to the rapid increase in internet-based economy and communication without sacrificing privacy and security.  

A new report from Wells Fargo Securities confirms that demand for data center space remains strong. Businesses have held up quite well during the COVID-19 pandemic as Q1 ’20 leasing activity was very strong, especially across the hyperscale-oriented sector. Additionally, demand for connectivity services has grown in the COVID-19 world: “Recent surges in Internet traffic have accelerated demand for connectivity services, including physical/virtual cross-connects, higher bandwidth interconnect ports and connectivity to cloud on-ramps,” Wells Fargo notes.

And there is hope that this surge will continue into the post-corona world. “We believe the current pandemic could accelerate enterprise adoption of hybrid IT solutions on the other side of COVID.”

Despite the relatively positive outlook, Wells Fargo does point to some near-term risks: Specifically, a potential slowdown in Q2 leasing and supply chain shortages in late 2020 and beyond, and possible construction delays. 

On the Institutional Building front, Dodge Date & Analytics notes that healthcare-related construction starts, which were down 11% in 2019, are predicted to grow – with a 5 and 8% increase in 2020 and 2021, respectively --, as extra hospital space and equipment are needed to meet the demands of current health crises, and prepare for future emergencies. 

With social distancing measures likely to be in place for the foreseeable future, workplaces, schools and universities will need to be equipped to support teleworking and remote learning, which again creates increased demand for secure, scalable data and communications services. 

Finally, the Government has instituted various measures to help steer the economy through the current crisis. Federal funds are being made available to local and state governments – this will pay for projects above and trickle work into the economy

The bottom line, per Dodge Data & Analytics: Despite a painful 2020 – especially Q2 –for US Construction and other segments of the economy, the tide should start to turn toward the end of the year. And even in the current climate, opportunities do present themselves.  

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