Predicting the outlook for the U.S. economy and its market sectors is never easy, but 2024 presents particularly difficult and unique challenges. Even if you assume that the dysfunction in Congress dissipates and the likely historic presidential race between a politically unpopular octogenarian incumbent, an antagonistic septuagenarian facing 91 criminal charges, and an outlying independent from Camelot is more a sideshow than a driver, 2024 still has its share of questions. Will inflation remain in check? Will the Fed continue to raise interest rates? How will the conflicts in Ukraine and the Middle East impact our economy? What’s China’s next move? What of the stock and bond markets? Nostradamus might call it quits faced with these uncertainties, but in this issue of The Friedman File, we fearlessly attempt to assess the various major markets served by A/E/C firms and venture an educated guess at their outlook for the coming year.

Housing Humbled

The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index has been a rollercoaster ride the past couple of years. The Index, which reflects the optimism of homebuilders on a scale of 1-100, stood at an impressive 80 in October 2021 on its way to a near-record 84 in December. By October 2022, the Index was at 38 and continued to struggle through spring of 2023. Summer brought hope with scores at 50 or above in May through August, but the good feelings receded, with the October 2023 index sliding to 40. The variation is understandable. Despite high demand and low supply – usually a recipe for strong growth – skyrocketing interest rates and demographic complications are holding construction activity in check.

Consulting and publishing firm PSMJ Resources offers data from the 3rd Quarter of 2023 that similarly suggests trouble for the 2024 housing market. Respondents to its Quarterly Market Forecast (QMF) survey of A/E/C firm leaders reported improving conditions in the single-family housing market in the 2nd Quarter, but disappointing results in the latest quarterly assessment. The QMF measures the forward-looking metric of proposal activity for 12 major markets and 58 submarkets. Its index tracks the difference between the percentage of respondents reporting growth in a market and those seeing a decline on a scale of -100 to 100. For the third quarter, both Single-Family Developments and Single-Family Individual Homes were in negative territory. While 36.7% and 25.5% of respondents reported a decline in proposal opportunities from the prior quarter, respectively, only 16.3% and 21.8% experienced growth.

Despite these longer-term red flags, the U.S. Census Bureau reported that construction starts in September increased by 7%. The likely reason is that the shortage of existing homes for sale is driving those in the market to buy new, as evidenced by the fact that existing home sales hit a 13-year low in September. So even though the metrics for new homebuilding are unfavorable, buyers with no options but new construction are preventing a total collapse.

Single-Family Housing Outlook. Interest rates are expected to pull back next year – the National Association of REALTORS predicts that the average rate will drop to 6% by the end of 2024. Demand for new homes will continue to grow as GenZers join the homeownership ranks while Baby Boomers and GenXers sit tight. So expect a decent, if unspectacular Single-Family market in 2024 that is ultimately slightly better than 2023.

Multifamily Returns to Earth

The Multifamily market proved immune to the ups and downs experienced by the single-family sector the past several years, as it ran off a prolonged string of impressive monthly and annual numbers in various tracking sources. This began to change in 2023 as vacancy and interest rates rose and the growing influx of new multifamily properties finally dented what seemed like insatiable demand. In an August 2023 release, Fannie Mae wrote, “Since [the] second quarter 2022, [Multifamily] starts have declined at a relatively consistent rate. It is worth noting, however, that the number of starts in the second quarter of 2023 alone was around 100,000 units, according to Dodge Data & Analytics, which was a return to pre-pandemic historical levels. We believe the decline is due to a combination of short-term supply-side market saturation, the broader increase in interest rates making financing new construction significantly more expensive compared to recent years, and a reported pull-back in construction lending by many banks.”

Multifamily Outlook. Anecdotally, we hear from A/E/C firms working in the multifamily market that opportunities remain plentiful, albeit down from recent highs. We expect this state to continue in 2024. As more units come on line, interest rates stay high and vacancies rise, multifamily demand will ease. But it won’t go away. Demand for affordable housing – especially when single-family homes are unaffordable for many – will keep the multifamily market humming at a decent pace next year. But firms in this market may find that some belt-tightening is needed to offset reduced activity.

Commercial Bottoming Out

Hope for a widespread rebound in the major commercial markets was dashed in 2023. Like the fans of all but one team in every sport annually say, “Maybe next year.” And why not? It’s hard to believe that the office, retail and restaurant markets could sink lower, at least as reported by PSMJ’s QMF survey of proposal activity. Commercial Developers and Commercial Users – two of 12 major markets assessed in the survey – occupied the bottom two spots for six consecutive quarters through the 3rd Quarter of 2023.

Yet, we see a slight bounce-back in several of the long-struggling commercial markets. Commercial real estate consulting company CBRE reported improving Retail market fundamentals in the 3rd Quarter of 2023. “Demand for retail space increased in Q3 with net absorption up by 34% quarter over quarter. The overall retail availability rate fell to at least an 18-year low. The neighborhood community and strip center segment had the biggest year-over-year decrease in availability of 50 basis points. Total construction completions remained low in Q3 as high construction costs and tight lending conditions made development less feasible.” With demand rising and little new supply to meet it, the Retail market may have bottomed out. Despite this optimism, Retail for Lease had the third-lowest proposal activity index score of the 58 submarkets measured by PSMJ in the 3rd Quarter.

The U.S. Census Bureau reports that value of construction put in place for the Commercial market, which includes restaurants and retail, rose just 4.5% from September 2022 to September 2023, and fell 0.9% from August 2023. With higher material and labor costs pushing these numbers up, the results are even less impressive. Lodging and Office show moderate year-over-year gains, but minimal quarter over quarter.

Commercial Market Outlook. Most commercial markets have rebounded from the depths of the pandemic, but indicators suggest another year of uneven activity for lodging, retail, restaurants and office properties. When you assess these markets nationally or globally, the outlook is weak at best. However, as has been the case for the last few years, pockets of geographic activity and market opportunities will keep A/E/C busy in areas of strong population and economic growth. For example, the Office market obviously took a hit from the workplace changes brought on by the pandemic. But many firms that focus on renovating and reconfiguring office space are thriving. So while a widespread turnaround of the Office market isn’t likely for a while, pools of opportunity will exist through 2024.

Industrial Warehouse & Distribution Settles

Changing practices in retail and logistics drove a stellar market for industrial and commercial warehouse properties and distribution centers for a sustained period of several years. Though still active, this market has eased back to more normal levels in recent months. The PSMJ survey measures three types of warehouse properties – commercial users, commercial developers and industrial – and all three reported reduced growth in proposal activity both quarter-over-quarter and year-over-year in the 3rd Quarter of 2023.

Industrial Warehouse & Distribution Outlook. An influx of new industrial warehouse and distribution facilities has eased demand and led to rising vacancies. There is scant reason to believe that the market will return to previously record-breaking levels, but unrelenting growth in demand brought on by an expanding reliance on e-commerce and advancements in logistics will keep this a healthy market in 2024.

Public Infrastructure Soars

Based on the numbers and discussions with industry leaders, the Infrastructure Investment and Jobs Act (IIJA) bolstered backlogs and revenue for A/E/C firms from coast to coast once it kicked in. Its effects will run for several more years. Government investment in Transportation, Water/Wastewater and Education kept these markets humming throughout the first three quarters of 2023. In PSMJ’s survey of proposal activity in the 3rd Quarter, the two leading major markets among the 12 surveyed were Water/Wastewater and Transportation. Of the top 10 submarkets of 58 assessed in the survey, four were from Water/Wastewater (Water Distribution was 2nd, Wastewater Treatment was 4th, Water Supply was 5th and Water Treatment was 6th) and three were from Transportation (Roads 8th, Bridges 9th and Transportation Planning 10th).

Infrastructure Outlook. The good times will continue for the infrastructure markets, as demand is high and public money is plentiful. Republicans in Congress have introduced spending cuts for transportation and water-related projects, but with the White House and Senate held by Democrats through 2024, the threat is minimal next year.

Here are other takeaways for markets and submarkets in 2024:

Education bounced back in 2023 after a couple of rocky years. While growth is likely to cool, a healthy level of activity is projected to continue through 2024.

Renewable Energy has been the leading or second-place submarket in eight straight quarters of PSMJ’s survey, and with decarbonization and electrification growing in prominence in the battle to fight climate change, the streak should continue in 2024.

A/E/C firms working in the Healthcare market report project delays, but few cancellations. With demand for healthcare services continuing to grow as Americans age and live longer, and the need for facilities to address deferred maintenance and upgrades to accommodate technological improvements, the long-term outlook remains solid.

The Manufacturing market boom “is principally driven by construction for computer, electronic, and electrical manufacturing—a relatively small share of manufacturing construction over the past few decades, but now a dominant component,” the U.S. Treasury Department said in a report titled “Unpacking the Boom in Construction Manufacturing Facilities.” PSMJ’s survey found that proposal activity in manufacturing was the 11th-best sector of the 58 submarkets measured. Next year looks to be more of the same with capital investments still coming in from the CHIPS and Science Act and other government programs.

Final Thoughts

With attention focused on the presidential election, and current economic and political conditions unlikely to change dramatically in 2024, expect that most major markets and submarkets will perform similarly to 2023. We’ll see more firms cutting back and a job market that is slightly less competitive than it has been. But if firms plan well, focus on consistent operational improvement (e.g., in marketing/business development, client service and project management, and technology upgrades), there will be more than enough opportunities in nearly every market to make 2024 another strong year for the A/E/C industry.

What do you think about what’s coming in 2024? Are you seeing any of this differently? Share your thoughts with me at or 508-276-1101.