Q4 2024
Construction Market Update
This quarterly spotlight provides an in-depth analysis of current trends, capital spend and industry outlook.
Three Takeaways
1.
Nonresidential construction spending is stable, with drops in some areas offset by growth in others.
2.
GDP growth has remained solid, with an annualized 2.7% increase in Q3 2024.
3.
Private electric utility construction spending has been stable but should increase in 2025.
Brett Williams
President
Construction
Jump to
Economic Outlook
Construction Outlook
Feature:
Capital Spending
and the Growing
Demand for Power
Navigating the New Political Landscape: What’s Next for Our Industry?
The 2024 election has concluded, ushering in a new era of political leadership. As we transition to a new presidential administration, our industry faces both opportunities and challenges. While many questions remain, we can begin to analyze potential impacts on our sector.
Historically, Republican administrations have favored deregulation, which could streamline infrastructure project development. This potential easing of regulatory burdens may benefit our customers and accelerate project timelines.
However, we must also consider potential economic headwinds:
These factors could significantly impact project costs and timelines.
One certainty remains: the growing demand for power generation. This presents both a challenge and an opportunity for our customers. In this quarter's update, Chris Ruckman and Charles Clinton provide insights on potential power generation sources and strategies to navigate this surge in demand.
As the new administration takes shape, we'll closely monitor policy developments and their potential impacts on our industry. We're committed to keeping you informed and helping you navigate these changes.
Thanks for reading and stay safe.
Construction Spending Highlights
+24%
Projected increase in construction starts for data centers in 2025
+5%
Projected increase in investor-owned utility capex in 2025
~$294B
Estimated federal funding allocation from IIJA through 2026
Economic Outlook
Although the Federal Reserve cut interest rates for a second time in November, we’re not seeing — or expecting — a wave of new projects as we close out the year. Here’s why:
If long-term rates come down, we expect to see more projects moving forward in the beginning of 2025, especially given how many projects were delayed over the past year.
While interest rates get seemingly constant coverage in the news, they are just one economic variable. Other important indicators and trends, below, affect the economic forecast as well:
Overall, these factors paint a positive picture for the economy heading into 2025.
Within the AEC industry, indicators are a bit more mixed. The AIA/Deltek Architectural Billings Index, FMI Nonresidential Construction Index and Manufacturing PMI all show levels consistent with industry contraction, while the ACEC Engineering Business Sentiment survey continues to show strong, positive sentiment.
Construction Outlook
Overall, nonresidential construction spending has been incredibly stable over the past year, with drops in commercial, office and highway/street offset by growth in manufacturing, transportation, data centers, sewer and water.
Office and Data Centers
Power
Infrastructure
Spending on water and sewer projects has trended upward since the beginning of 2023. This trend should continue as federal funds continue to be awarded and spent (Infrastructure Act funding goes through 2026). Federal spending should also boost highway and street spending, which is down 6% from the start of 2024.
Construction Spending
Chris Ruckman
Vice President
Power
Charles Clinton
Business Development Director
Mission Critical
Power Market Forecast: Capital Spending and the Growing Demand for Power
The power market is evolving rapidly, driven by a surging demand for electricity across a diverse range of industries. Data centers, a primary focus of energy demand conversations, share the ever-expanding spotlight with electric vehicles, manufacturing facilities, commercial and industrial electrification, and more. This evolution is reshaping how utilities, developers and regulators think about power generation and distribution.
While the opportunities are immense, the challenges will require significant investment, collaboration and innovation. Each new project, from an AI-focused data center requiring hundreds of megawatts to an EV charging hub or a semiconductor plant, presents big questions: Where will the power come from? And how can providers determine the necessary infrastructure improvements or possible interconnection enhancements without risking the pitfalls of overbuilding or underdelivering?
Decisions made today must anticipate the energy landscape of tomorrow — considering the potential shifts in energy consumption patterns and changing regulatory landscapes and environmental policies — all while grappling with strained supply chains, aging grid infrastructure and the need for rapid expansion of low-carbon electricity sources.
We know power demand forecasts have increased, but source information varies dramatically, especially when it comes to data centers, which currently account for around 4% of U.S. electricity demand. Depending on the forecast, they could grow to anywhere from 5% to 12% of electricity demand by 2030. Goldman Sachs estimates that data centers, the fastest-growing component of power demand, account for 31% of projected increases. Electric vehicles and industrial, commercial and residential electrification also contribute significantly to increasing power needs. But the wide range of predictions presents much uncertainty.
To meet new capacity and infrastructure requirements, many hurdles must be cleared. At the same time, supply chain constraints drive up costs and delay critical projects, creating bottlenecks that ripple across industries. Overcoming existing and anticipated power challenges will require a diverse energy portfolio that can deliver reliable power while maintaining sustainability goals.
Natural gas, with its ability to ramp up quickly, remains a viable option for meeting peak demand. But pipeline capacity lags behind, highlighting the need for much-needed upgrades. Solar and battery storage are both on pace for record additions, with over 32 gigawatts (GW) of utility-scale solar capacity additions expected by the end of this year. The immediate need for power — coupled with the challenge of rapidly scaling renewable resources — is accelerating financial conversations and, therefore, developments in geothermal, nuclear and long-duration storage.
Small modular reactors (SMRs) and enhanced geothermal systems can provide consistent electricity that complements renewable energy sources. Changes to the NRC licensing process for SMRs and microreactor designs are proceeding, though it can be too lengthy a process to meet immediate demands. However, it’s encouraging to see renewed interest in this generation source for reliable clean power. Long-duration energy storage is crucial for bridging the gap between generation and demand, especially as wind and solar take on a larger share of the energy mix. The U.S. grid could require 225 GW to 460 GW of long-duration energy storage capacity by 2050 to support a net-zero economy, representing a potential $330 billion in cumulative capital requirements.
The electrification of industries represents one of the greatest opportunities of our time, but it’ll require unprecedented innovation and collaboration, technological breakthroughs and policy support. Working together, our industries can create a resilient, adaptable, sustainable and long-lasting power system that addresses the challenges posed by a data-driven, power-hungry world.
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