Various factors including more employees working from home, inflation, a potential recession and investor hesitancy have placed a number of question marks around the status of commercial real estate. Despite these concerns, there’s reason for “enthusiasm and optimism” for CRE growth prospects, according to the Dodge Momentum Index (DMI), a monthly measure of the initial report for nonresidential building projects in planning, issued by Dodge Construction Network. DMI is shown to lead construction spending for nonresidential buildings by a full year.
The sunnier outlook for the CRE industry allowed commercial and institutional planning to close out 2022 on a positive note. The DMI improved 6.6 percent in December to 222.2, compared to the 208.3 registered in November. Additionally, DMI’s commercial component increased 8.4 percent.
“One of the key construction storylines for 2022 was the return of enthusiasm and optimism in prospects for nonresidential growth,” said Richard Branch, chief economist for Dodge Construction Network. “While some of that will likely erode in 2023 as economic growth wanes, increased demand for some building types like data centers, labs, and healthcare buildings will provide a solid floor for the construction sector.”
Increases across office, warehouse, retail and hotel planning were key in the CRE planning boost, according to Dodge Construction. Institutional growth focused on recreation and public building, but education and healthcare planning activity remained flat. DMI was 40 percent higher in December 2022 than the same time last year — the CRE component was up 51 percent and institutional planning was up 20 percent.
Meanwhile, 15 projects valued at $100 million more were planned in December. Top CRE projects included a $500 million Vantage Data Center in Sterling, Virginia, and a $183 million mixed-use building in Chicago. The leading institutional projects included the $400 million Acute Neuropsychiatric Hospital in Los Angeles and a $185 million life sciences building in Philadelphia.
“When we look back at 2022, I think it goes beyond saying that it was a great year from the construction sector,” Branch said while discussing the December DMI. “Whether you talk about projects entering planning, project starts or completions, the construction sector certainly had a lot going for it. This year, at least on the service, with the DMI as a leading indicator would suggest that momentum should carry into 2023.”
