Construction Megaprojects

Since reaching record highs in May 2023, the manufacturing construction boom has shown signs of fading.

Although today’s manufacturing construction activity still dwarfs pre-2022 levels, starts in the sector have started to slow, according to Dodge Construction Network. That led The Wall Street Journal to question whether the segment has slipped into a slump.

But while those signals could portend weakness ahead, most contractors have remained unfazed.

“The manufacturing construction sector is very busy, and from discussions with our clients, we do not expect to see a slowdown any time soon,” said Andrew Ahrendt, national director of manufacturing at PCL Construction, an Edmonton, Alberta-based construction firm with U.S. headquarters in Denver. “We’ve barely scratched the surface.”

General contractors in the space insist they do not feel a slump. In fact, they still foresee an acceleration in activity in the near term.

For example, along with PCL, JE Dunn plans to stay busy on manufacturing jobs in 2024. The Kansas City, Missouri-based company will deliver Dongwha Electrolyte’s first project in North America, a $70 million electric vehicle battery production facility in Clarksville, Tennessee, as well as a $425 million manufacturing plant for Georgia-Pacific’s Dixie brand of consumer goods.

“We continue to see a demand in the market for large capital projects and our counterparts at architecture and engineering firms remain busy with new project inquiries,” said Brent Strength, senior vice president and manufacturing market leader at JE Dunn. “Manufacturing construction in 2024 should surpass 2023. Contractors have a healthy backlog from previous years, and there is a lot of Inflation Reduction Act, CHIPS Act and similar dollars being spent right now.”

Chicago-based Clayco also expects to remain busy with advanced manufacturing construction this year. The company recently won awards to build Rivian’s $5 billion EV plant in Stanton Springs, Georgia, as well as Entek’s $1.5 billion manufacturing campus in Terre Haute, Indiana.

“I do think that the advanced manufacturing segment is definitely continuing to see significant investment, and I think that’s going to continue to expand at very high rates in 2024,” said Anthony Johnson, president of the industrial business unit at Clayco, a Chicago-based construction firm. “We’re going to see a ramping up of actually more capital projects in 2024 than we did last year.”

2023 issues linger

Despite the optimism, contractors working in the manufacturing space face specific challenges as well.

Robust manufacturing starts in 2023 stretched procurement timelines for many materials across the board, namely microchips, HVAC equipment, electrical switchgear and fabricated millwork. Additionally, countries in Asia and elsewhere produce many of the essential materials used in EV battery technology, like copper and nickel, said Strength. 

That could slow progress, as the integration of this equipment into U.S. building codes and standards requires a uniquely qualified design-build team. Issues with procurement and adhering to U.S. code regarding EV construction, especially for first-time builders, can add months to the overall timeline of the project lifecycle, said Strength.

“Lead times for key equipment are still an issue that we spend a great deal of time mitigating,” said Strength. “Speed to market is still a priority. It is critical to work with a firm who understands how to plan ahead and navigate these challenges.”

Nevertheless, the flattening out of interest rate hikes, the easing of inflation and rising consumer strength should help bolster activity in 2024, said Johnson. He added while some uncertainty remains, the U.S. is in a much more controlled spot this year as it relates to inflation and interest rate hikes.

“I think all those stars are aligning to help provide some tailwind,” said Johnson.

Labor woes

In 2023, builders constructed numerous phase one-type projects. This year, Johnson expects a similar second wave of related projects to break ground. 

Additionally, for companies that experienced delays in finalizing their planning, financing or purchasing agreements in 2023, it is likely those projects will also break ground this year. For example, 16 manufacturing projects worth around $8 billion had their target start dates moved from the end of 2023 into 2024, said Richard Branch, chief economist at Dodge Construction Network.

That will amplify an already deep-rooted challenge within the industry.

“In 2023, there was certainly a strain on craft labor throughout the United States,” said Johnson. “That’s only going to get exacerbated this year because you have that wave of projects, similar to what you had in 2023, but now you also have a whole new wave starting this year too.”

Notable projects that were delayed last year include Scout Motors’ $2 billion plant in Blythewood, South Carolina, and American Battery Factory’s $1.2 billion factory in Tucson, Arizona.

“I think there are some risks here, particularly because that access to labor could undermine this forecast,” said Branch. “That’s coming at a time also when EV demand seems to be slowing down.”

TSMC recently delayed the production timeline at its second factory from 2026 to either 2027 or 2028, due to a shortage of skilled workers and challenges securing U.S. government funding, according to Chairman Mark Liu. The firm had already postponed production at the site’s initial factory from 2024 to 2025.

Still, many projects funded by tax credits from the Inflation Reduction Act are already in design, and are likely to continue to move forward as supply chains have already pivoted to rely on these new models, said Ahrendt. That momentum will keep general contractors that work in the space busy for the considerable future, said Strength. 

“The pace and amount of capital investment may ebb and flow,” said Strength. “But we believe momentum will continue to move in a positive direction in the years to come.”

Dive Brief:

• Phoenix is the top growth market in the U.S. for manufacturing construction, with the most new major projects and projected new jobs, according to New York City-based real estate firm Newmark Group. Its January Manufacturing Momentum report surveyed domestic manufacturing announcements totaling at least $100 million since 2020 through the third quarter of 2023.
• The Phoenix metro area saw 14 major manufacturing announcements during that period, while Atlanta nabbed the second-most with seven megaprojects, followed by Austin, Texas, and Detroit with six each. Phoenix’s new facilities are expected to generate nearly 15,500 advanced manufacturing jobs.
• As federal funding from the $52 billion 2022 CHIPS and Science Act flows, more than 160 jurisdictions across the U.S. are set to receive at least one new manufacturing facility, per the report. The multibillion-dollar investments range from biotechnology facilities and chip plants to electric vehicle battery factories and clean energy projects.

Dive Insight: 

Major manufacturing projects are cropping up around where they have the labor pool to do so, Newmark Group found. Different stages of manufacturing operations — research and development, pilot plant and mass production — require different types of labor, and must be located accordingly. 

R&D facilities tend to be smaller and located near specific talent such as universities, but at the mass production level, they need a deep labor pool and access to an abundant power supply. Locations with affordable land, lower construction costs, favorable tax structures and financial incentives are most attractive for these types of manufacturing facility projects, the report found.

The domestic manufacturing sector has been growing around the country since 2020, according to the report, when the COVID-19 pandemic stressed supply chains and exposed vulnerabilities.

“The desire of firms to bring operations closer to consumption, especially in the wake of the pandemic, has been a clear driving force behind considerable sector-specific labor market gains since 2020,” the report said.

Even before the pandemic and new federal funding, Phoenix’s’ stable weather, low utility costs and business-friendly environment attracted an uptick in industrial building over the past seven years, contributing to its moniker “Wall Street of the West.”

Phoenix’s construction market volume is nonetheless forecasted to dip 13.4% this year, mostly dragged down by the residential sector. Area contractors have also reported difficulties in finding enough labor, forcing them to bring workers from as far as California, as well as concerns about the availability of water.

Dive Brief:

• California launched a new state website this week to track $180 billion in infrastructure projects over the next 10 years, according to the office of Gov. Gavin Newsom. 
• Build.ca.gov tracks projects that have benefited from the Infrastructure Investment and Jobs Act, and includes fast-tracked jobs aimed at building a 100% clean electric grid, boosting the state’s water supply and modernizing its transportation system. 
• Newsom signed an executive order last May to establish an Infrastructure Strike Team to remove barriers to project development in California’s notoriously slow permitting process. 

Dive Insight:

The website features a map that spotlights numerous projects, from a solar energy storage site in Kings County north of Los Angeles to a new border crossing facility in San Diego and Bosch’s $1.5 billion investment in a chip fab in Northern California, which was spurred in part by a $25 million state tax credit. 

But while Newsom’s administration has been successful in speeding up some projects — damage from a fire on the I-10 freeway in Los Angeles was addressed in days, rather than the months initially estimated — other large-scale projects have suffered from the quagmire of Golden State politics. 

For instance, California’s high-speed rail project between San Francisco and Los Angeles was originally estimated to cost $9 billion and be completed in 2020. Since then, the project’s price tag has ballooned to $128 billion, with the first trains now slated for passenger service in 2030 to 2033 at the soonest. 

The new website doesn’t mention those costs, however, and instead emphasizes the project “will boost our economy and connect more regions than ever before.”

Still, while more details are available on some projects than others — the site’s high-speed rail spotlight page links to other pages with more info — it does provide a single-screen, interactive view into projects happening around the state. 

California isn’t alone in highlighting projects that have benefited from infrastructure dollars. Wisconsin has also launched a site to track its benefits from the IIJA, as has Massachusetts. The White House unveiled a tracker and map of funded projects last year. 

The U.S. continues to gain ground on other countries’ manufacturing dominance a year after President Joe Biden signed the $52 billion CHIPS and Science Act in August 2022.

The renewed push to revive American manufacturing after decades of offshoring has led to over $516 billion in private company investment, according to the White House. The multibillion-dollar investments scattered across the country range from biotechnology facilities and chip fabrication plants to electric vehicle battery factories and clean energy projects.

Some major manufacturing projects added to this page over the past four weeks include Wolfspeed’s multibillion-dollar John Palmour Manufacturing Center for Silicon Carbide in Chatham County, North Carolina, and Joby Aviation’s $500 million manufacturing facility in Dayton, Ohio.

The map also lists the contractors working on these projects when they are available. Some of the notable wins since the last update include:

• Whiting-Turner’s award to begin initial sitework on the John Palmour Manufacturing Center for Silicon Carbide for owner Wolfspeed.
• Evans General Contractors’ contract on a $1 billion BMW EV plant in Spartanburg, South Carolina.
• McCarthy’s win on the $400 million ICL manufacturing facility in St. Louis, Missouri.
• Tippman Group’s contract on the $205 million SK Food Group’s manufacturing facility in Cleveland, Tennessee.

Through August, manufacturing construction spending increased 65.5% in 12 months, according to an Associated Builders and Contractors analysis. On a seasonally adjusted annual rate, spending in the sector hit approximately $198.45 billion in August.

That exponential growth isn’t expected to hit any speed bumps either, according to Richard Branch, chief economist at Dodge Construction Network.

”Public dollars are flooding into the manufacturing and infrastructure sectors,” said Branch. “[That’s] leading to significant growth over the last year.”

The CHIPS Act provides $52.7 billion for American semiconductor research, development, manufacturing and workforce development. This consists of $39 billion in manufacturing incentives, including $2 billion for the legacy chips used in automobiles and defense systems, $13.2 billion in research and development and workforce development and $500 million to strengthen global supply chains, according to the Biden administration. The CHIPS Act also provides a 25% investment tax credit for capital expenses for manufacturing of semiconductors and related equipment.

Additionally, several $1 billion or more manufacturing projects remain in the pipeline over the remaining months of the year. That should keep construction starts in the sector elevated for the foreseeable future, said Branch.

EdgeCore Digital Infrastructure, a Broomfield, Colorado-based data center developer, owner and operator, selected Atlanta-based Holder Construction to build its $1.9 billion data center campus in Mesa, Arizona, according to an email shared with Construction Dive.

Once complete, the water-neutral campus in Mesa will reach the capability to support a minimum of 450 megawatts of critical load and will be engineered to meet current and future customer requirements across 3.1 million square feet of space. The campus already currently has one operational data center, according to an EdgeCore release.

To fund the scalable development, EdgeCore recently completed a $1.9 billion debt financing transaction, according to the data center operator.

The campus regulates temperatures using an air-cooled design along with a closed-loop chilled water system, according to EdgeCore. That means the facility will achieve a benchmark water usage effectiveness rating of nearly zero and a power usage effectiveness rating surpassing the industry average. That’s important since data center projects, especially in desert environments like Arizona, are often seen as water-guzzlers.

Mesa has experienced a surge in data center construction lately, largely due to the region’s few natural disaster risks, low utility costs and an overall business-friendly environment.

For example, Meta, the parent company of Facebook, selected DPR Construction last month to build its $1 billion data center in Mesa. Meanwhile, Google also plans to build a $600 million data center facility there. Other projects nearby include two semiconductor fabs worth $20 billion in Chandler, Arizona.

Dive Brief:

• The Gordie Howe Bridge project has pushed its completion date and raised its cost by $700 million Canadian dollars ($523.6 million), according to a Jan. 4 press release from the Windsor-Detroit Bridge Authority.
• Officials blamed the delay on issues that came with the start of the COVID-19 pandemic, according to the release. Rather than the original timeline of November 2024, construction on the new span that will connect Windsor, Ontario, to Detroit will finish in September 2025 with a new price tag of $6.4 billion.
• News of the setback, however, was not surprising — in 2022, an analysis from S&P predicted that the bridge would likely not open until August 2025, nine months after its initial target date.

Dive Insight:

WDBA and builder Bridging North America, a consortium of Irving, Texas-headquartered Fluor, Madrid-based ACS Infrastructure and Aecon of Toronto, jointly agreed to extend the timeline and cost, per the release. The two entities are delivering the bridge as a public-private partnership.

Charl van Niekerk, the bridge authority’s CEO, said the building team was glad it only incurred a 10-month delay, given the size and complexity of the project and the massive impacts the pandemic had on construction, according to the release. When finished, the bridge will aid one of the busiest land crossings between the two countries.

In addition, issues were exacerbated by the bridge’s status as an international project, which meant the building team had to jockey with two different sets of restrictions, from both the U.S. and Canada, per the release.

“With safety as our top priority, we will continue to work together to deliver this much needed infrastructure to the thousands of eager travelers ready to cross North America’s longest cable-stayed bridge,” van Niekerk said in the release. 

The project, which began construction in 2019, has also dealt with unrelated issues that have stymied construction efforts. Last summer, a 100-foot-long section of road collapsed inward, and forced the project to halt for 18 days.

In an environment that’s benefited from the $1.2 trillion Infrastructure Investment and Jobs Act, public projects have generally been able to maintain momentum. Private, developer-driven projects, however, are experiencing difficulties as capital markets dry up and lines of credit become tighter.