The leading index of commercial real estate fell in May

To Estimated risk per 06/07/2023 15:13:00

From Dodge Data Analytics: Dodge Momentum fell 2% in May on weaker commercial planning

Dodge Momentum Index (DMI)released by Dodge Construction Network, fell 2.0% in May to 180.5 (2000 = 100) from a revised April value of 184.1. Over the month, the commercial component of DMI fell by 6.1%, while the institutional component improved by 5.6%.

“DMI declined in May amid sustained weakness in commercial planning,” said Sarah Martin, deputy director of forecasting for the Dodge Construction Network. “Conversely, institutional planning steadily improved throughout the month as research laboratories and hospital projects steadily entered planning. Sustained federal funds rate hikes and tightening lending standards are likely to dampen DMI growth in the second half of 2023; however, the index remains above the historical average. This paints an optimistic outlook for non-residential construction in mid-2024 as the economy recovers and the Fed starts cutting rates.”

Commercial planning in May was negatively affected by continued weakness in office and hotel planning. Institutional planning has accelerated along with a steady rise in education, health and entertainment projects. On an annualized basis, the DMI remains 11% higher than in May 2022. The commercial and institutional components grew by 7% and 18%, respectively.

DMI is a monthly indicator of the initial report on non-residential building projects in the planning process, which shows a lead in the cost of construction of non-residential buildings for the whole year.
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Dodge Momentum Index Click on the graph to enlarge the image.

This chart shows the Dodge Momentum Index since 2002. In May, the index was 180.5 compared to 184.1 the previous month.

According to Dodge, the index outperforms “non-residential construction spending by a full year.” This index assumes a slowdown by the end of 2023 or 2024.

Commercial construction is a lagging economic indicator.