Nonresidential Construction Spending Trends: What HVACR Wholesalers Need to Know

Nonresidential Construction Slowdown and Its Impact on HVACR Demand

Total nonresidential construction spending slowed in 2024, with its pace of growth falling from 18 percent in January to 6 percent in December. These declines follow two years of explosive growth, and various forecasts suggest that the downward trend will continue as high growth rates roll over and the lagged effects of interest rates take hold. However, while nonresidential spending totals are highly correlated with nonresidential HVACR and water heater demand, the growth rates we see in total nonresidential spending do not necessarily equal the growth rates we estimate for HVACR and water heater demand.

The chart above shows the growth rate in the total nonresidential construction spending through December 2024 (black line) as well as the forecasted growth rate through December 2025 (orange line), according to Moody’s Analytics. Moody’s forecasts total spending on nonresidential properties to decline 1 percent from 2024 levels in 2025. However, as this series captures the dollar value of all construction work done, spending by individual nonresidential segments will be a more accurate gauge for the direction of nonresidential HVAC, refrigeration, and water heater sales.

Market Strength Amid Declines: Key Sectors to Watch in 2025

Despite forecasts of negative growth in aggregate nonresidential construction spending, there will be pockets of market strength in 2025. Spending on education is poised for another year of positive growth, as is spending on office properties. However, nonresidential spending on offices includes total spending on data centers, which has grown at a spectacular pace (>50 percent) in 2024. Therefore, the office spending forecast is propped up by spending on data centers, and HARDI members with businesses exposed to the traditional office market should plan for another year of tepid sales performance. Total spending on manufacturing facilities is also projected to decline in 2025, though these declines come from a very high base, and overall sales performance should remain strong. The pace of recent spending declines on warehouse and retail properties are expected to level off in 2025 and finish the year in roughly the same place as they were at the end of 2024.

Strategic HVACR Planning for 2025: Leveraging Nonresidential Market Insights

We encourage HARDI members to consider nonresidential spending forecasts as they plan their sales strategies in 2025. However, spending growth rates are not perfect correlates of HVAC, refrigeration, or water heater demand, and they should not be the only factors under consideration. For further insights into how the nonresidential market will fare in 2025, and to learn how HARDI anticipate the year unfolding for the industry, be sure to invest in a copy of the 2025 State of the Channel report for your company.

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