Key insights
- Barclays anticipates a bottom in US non-residential construction, driven by AI megaprojects in data centers and power. While overall spending may rise, volume-intensive segments face challenges. Recovery could be tempered by high interest rates and inflation. The bank's outlook suggests a mid-single-digit increase in construction starts above consensus, favoring rental companies and engineering/construction firms focused on AI and power infrastructure.
Investing.com -- Barclays said U.S. non-residential construction is reaching a bottom after a multi-year square foot recession, with growth focused on AI-driven megaprojects in data centers and power infrastructure.
The bank noted that non-residential construction has experienced a square foot recession that inflation-driven dollar growth has masked. Large project activity has dominated the sector since 2023, with the project mix shifting toward AI-driven projects over the past 18 to 24 months.
Barclays explained that megaprojects sustain and grow overall spending but contribute less to volume-intensive segments due to lower construction work intensity per dollar spent.
The broader non-residential market is stabilizing, according to the bank. Negative non-residential categories are becoming less negative, and leading indicators such as commercial and industrial loan growth are beginning to turn upward.
The bank said a recovery could face constraints from higher interest rates, inflation, public funding uncertainty, and supply discipline in non-residential categories like retail and warehouse. A dormant and more disciplined residential market also presents challenges.
Barclays raised its construction starts view to mid-single digits above consensus. The bank sits approximately 200 basis points ahead in power, gas, and communications, 175 basis points in offices including data centers, and 100 basis points in manufacturing.
The bank said utilization improvements and replacement favor rental companies and select equipment names, while AI and power continue to support engineering and construction firms but with less hard infrastructure support. Aggregates companies should see price momentum accelerate in the second half due to inflation.