Construction Starts to Increase as Interest Rates Fall, Dodge Says

Courtesy of Dodge Construction Network

The dollar value of construction starts is predicted to rise 9% in 2025, with 2024 closing out up 8%, Dodge Construction Network predicts.

Richard Branch, chief economist, presented next year’s forecast on Nov. 14 and called it "The Impact of Lower Rates on the Construction Sector in 2025." Interest rates have begun to decline, and barring a rise in inflation, Branch expects an additional cut in December. Total starts are expected to reach $1.18 trillion in 2024, and $1.28 trillion by the end of 2025.

In the residential sector, multi-family housing starts are expected to rise 11% by number of units in 2025 after falling 10% in 2024. Single-family starts will increase 15% by the end of this year, according to Dodge, with another 5% boost expected in 2025. Much of this growth is in the “sunbelt” states, says Branch, such as Texas, Nevada, New Mexico and Arizona, as people look to buy homes in more affordable areas.

Commercial starts are forecast to rise 5% in 2024, and another 7% in 2025. Retail and hotel construction, two sectors hit hard by the COVID-19 pandemic, are on the upswing. Retail starts are predicted to finish this year up 5% before rising 17% next year, while hotel starts are up a whopping 31% this year, with another 16% expected in 2025.

Data center construction continues to be a bright spot as well, shooting up 57% in 2024, and forecast to rise 24% in 2025.

One weak spot within the commercial sector is warehouse construction, says Branch, largely due to Amazon’s halt in building in 2023 following several years of high activity. In 2024, starts are down 8%, with an additional 1% drop expected next year.

Institutional starts are up 16% this year, and expected to rise 4% next year, with both the hospital and education markets seeing an increase in project starts. In the non-building sector, highway and bridge starts continue to be bolstered by federal funds. Dodge reports an expected 22% increase in bridge construction this year, and an additional 11% boost in 2025. Highway starts are up 12% in 2024, and expected to rise 14% next year.

Alisa Zevin is the economics editor for Engineering News-Record, covering economic issues within the construction industry, including construction economics and ENR's quarterly cost reports. She is based in New York City.

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