Abandonments, delays ease due to anticipated interest rate cut

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Dive Brief:

• Even as delays on some megaprojects have caused jitters across construction, actual abandonments of jobs decreased 23.7% in July, according to Cincinnati-based ConstructConnect’s latest Project Stress Index, a measure of construction projects that have been paused, abandoned or have a delayed bid date.
• Delayed bid activity ticked down 6.8%, while work put on hold also slowed by 10.6%. Overall, the Project Stress Index plummeted 14.2% in July.
• “Project owners are more convinced now than ever before that the Federal Reserve is destined to cut interest rates both sharply and in the immediate future,” said Michael Guckes, chief economist at ConstructConnect. “If being convinced that holding out for just a few more weeks or months could make the difference between a project being a success or failure, it makes sense for developers to take even a brief wait-and-see approach rather than abandon projects just before conditions potentially improve.”

Dive Insight:

Project abandonments tumbled in July in one of the largest monthly declines ever due to the anticipated interest rate cut, according to ConstructConnect.

Private projects placed on hold slowed 20% year over year. Meanwhile, abandonment activity among private projects ticked down 14.1%, according to the data.

But until the Fed actually cuts rates, the relatively high cost of borrowing will continue to affect the pace of construction projects, particularly on the private side.

For example, Philadelphia-based real estate developer Shift Capital recently placed conversion work on the Beury Building in North Philadelphia on pause due to lender financing issues. Shift Capital CEO Brian Murray told the Philly Voice that high interest rates are making banks nervous to commit to certain construction projects.

The developer planned to convert the building into a Marriott hotel. Marriott International, the Bethesda, Maryland-based hospitality company, recently prioritized conversion projects over new construction in response to high costs and complex financing involved in new buildings.

On the public side, projects put on hold decreased 3.8% year over year, according to ConstructConnect, reflecting the relative strength these projects have sustained due to readily available public funding, even as privately funded construction has struggled.