Looking back at CRE in 2024, it was the year of the data center and tech construction.
According to the Wells Fargo economics team, “Several pockets of strength are counteracting broader interest rate-driven weakness in nonresidential construction. Data centers are a notable example. Private data center construction rose 2.7% in November, capping off a 43% year-over-year jump in outlays. While overall private manufacturing spending continued to moderate, spending on computer and electronic manufacturing improved over the month. Private commercial construction also eked out a 0.1% gain, supported by a modest improvement in warehouse spending.”
Elevated Rates Continue to Constrain Construction
Total national construction spending was unchanged in November as a modest gain in residential outlays helped offset a small decline in nonresidential spending. The residential rise was driven by growth in single-family and home improvement outlays, reflecting home builders’ ability to offer incentives to shore up demand and low supply in the existing home market. Although data center, power and highway & street outperformed, most other nonresidential segments weakened during the month. All told total construction spending continues to moderate as elevated interest rates and tight credit conditions weigh on activity.
Nonresidential Construction Falls Victim to Inflation Fight
• Nonresidential construction outlays continue to temper under the lagged effects of monetary tightening. Overall, nonresidential construction slipped 0.1% in November amid no change in private outlays and a drop in public spending.
• Within private construction, increased spending on communication, transportation and power projects was enough to offset ongoing declines in commercial real estate investment. Spending on private health care, education, traditional office and lodging projects all waned over the month.
• Several pockets of strength are counteracting broader interest rate-driven weakness in nonresidential construction. Data centers are a notable example. Private data center construction rose 2.7% in November, capping off a 43% year-over-year jump in outlays. While overall private manufacturing spending continued to moderate, spending on computer and electronic manufacturing improved over the month. Private commercial construction also eked out a 0.1% gain, supported by a modest improvement in warehouse spending.
• Public nonresidential spending dipped 0.2% in November but remained solidly positive year-over-year (+4.4%). Dips in education, public safety, transportation and water supply spending offset a solid gain in public health care outlays. Spending also improved in infrastructure-related categories like highway & street, power and sewage & waste disposal.
• After being stuck in contraction for more than a year, the AIA/Deltek Architecture Billings Index (ABI) came in at 49.6 in November, the second consecutive month that a roughly equal share of firms reported both higher and lower billings activity. Multifamily and institutional billings improved while commercial and industrial activity eased in November. The ABI tends to lead nonresidential construction by about a year, setting the stage for a modest improvement in structures outlays in 2026.
