Sponsored
The electrical industry is tracking for slow growth in 2025 after a steady but not spectacular year in 2024. Electrical Marketing’s updated estimated electrical sales potential data pegs sales growth at +2% nationally and $150.4 billion in total electrical sales (not adjusted for inflation).
It’s interesting to note that Electrical Wholesaling’s editors saw the same growth rate by using the EW's Market Planning Guide’s Sales-per-Employee Market and applying it to the latest available local employment data from the U.S. Bureau of Labor Statistics (a three-month average through Sept. 2024) and from an admittedly small sampling of respondents to a survey for the Market Planning Guide, that together forecasted +2% growth for 2025.
In addition, in the most recent Electrical Wholesaling/Vertical Research Partners quarterly survey, respondents saw similar pedestrian growth of +2.8% for Q4 2024. While these national forecasts are under Electrical Wholesaling’s annual industry growth average of +4% to +8% year-over-year (YOY) growth, quite a few states and Metropolitan Statistical Areas (MSAs) are growing at much better than the national YOY rate, according to our estimates. At the state level, the states currently growing the fastest are Alaska (+15.1%); Hawaii (+11.1%); Nevada (+9.5%); Montana (+8%); Oklahoma (+5.6%); Utah, Florida and South Dakota (all up +5.1% YOY).
Local Sales Stars in the Western Region
Three MSAs west of the Mississippi are growing at double-digit growth rates: Anchorage, AK (+16.15%); Honolulu, HI (+15.3%); and Baton Rouge, LA (+10.9%). Two of the nation’s largest markets also are growing at well over the national pace: the Las Vegas-Henderson-Paradise, NV, MSA (+9.8%) and Houston-The Woodlands-Sugar Land, TX, MSA (+5.5%). Some smaller markets in the Western region growing at more than triple the national rate were St. George, UT (+8.3%); Provo-Orem, UT (+7.6%); Tulsa, OK (+7%); Boise, ID (+6.6%); Albuquerque, NM (+6.4%); Sioux Falls, SD (+6.2%); and Reno, NV (+6.1%). The Houston and Dallas metros topped the nation when measured by estimated increases in sales dollar potential, with increases of $202 million and $140.8 million, respectively.
It's All Sunshine & Growth in Miami
The fastest-growing market in the Eastern region, according to EW’s estimates, was the Miami-Fort Lauderdale-West Palm Beach, FL, MSA, with $168.9 million more in estimated sales over last year and +7.4% growth. Contributing to this growth is an increase in electrical contractor employment through September of an estimated 1,750 employees (+8.8%), according to an analysis of U.S. Bureau of Labor Statistics data and a surge in population growth. This market saw positive net migration numbers with an increase of 32,663 new residents, according to U.S. Census data. This works out to roughly 89 new residents moving into the Miami market each day.
Other markets east in the Eastern Region with impressive sales potential growth include the Charleston-North Charleston, SC, MSA (+7.4%); Detroit-Dearborn-Livonia, MI, MSA (+7.1%); Crestview-Fort Walton Beach-Destin, FL, MSA (+7%); and the Richmond, VA, MSA (+6.9%).
Although current sales forecasts are on the light side, EW survey respondents were almost universally bullish on the impact of the Presidential election results. Said one respondent when asked about the impact of Trump being elected, “Very strong. Lower inflation, lower energy, lower interest rates, less Federal regulation and more legal action against Government overreach.”
Respondents also saw steady or improving growth in several key markets, including multi-family construction and industrial MRO work. Other markets that scored high in the EW survey included commercial lighting retrofits, educational new construction in K-12 schools, colleges and universities and data centers. Some evergreen key concerns surfaced when respondents were asked about their biggest challenges for 2025. Finding and keeping good employees was by far the leading concern, followed by running a profitable business and product price increases.
THE 2025 ELECTRICAL MARKET WILL FOLLOW THE FORTUNES OF THE CONSTRUCTION INDUSTRY
With well over half of the sales in the electrical wholesaling industry tied to non-residential and residential construction, changes in interest rates for construction loans and mortgage, and the impact of companies’ work-from policies on new office construction or retrofits of existing office space will have a humungous impact on electrical sales in 2025.
Many construction economists believe lower rates in 2025 will juice up construction spending. In her monthly analysis of the Dodge Momentum Index, a measure of future business conditions in the construction market, Sarah Martin, the associate director of forecasting for Dodge Construction Network, says rate cuts could impact the construction market by mid-2025. The Dodge Momentum Index is a monthly measure of the value of nonresidential building projects going into planning, shown to lead construction spending for nonresidential buildings by a full year.
“By late 2025, the impact of the Fed’s rate cuts should be substantial enough that we see projects in planning reach groundbreaking more quickly than they have over the last year or so,” she said. “That should lead to some stronger nonresidential construction starts in mid-2025 to early-2026. There really is a steady pipeline of construction projects that we believe are going to be ready to break ground once those market conditions are right.”
Richard Branch, chief economist for Dodge Construction Network, said in his monthly analysis of construction starts that, “Lots of projects are coming into the top of the funnel, but are not yet coming out of the spigot.” He expects that to change if the U.S. Federal Reserve cuts a full point off of the current federal funds rate.
Nick Lipinski, vice president and electrical equity analyst for Vertical Research Partners, Stamford, CT, said in his quarterly analysis of electrical business conditions that underlying bidding/quoting activity seems healthy and the outlook for 2025 seems “broadly positive.” “Data center and utility verticals remain the key growth engines,” he said in the report. “The recent Fed rate cut has already been broadly positive for commercial construction but less impactful on residential housing demand/affordability at a time when inflation is pinching consumer budgets.”
The American Institute of Architects (AIA), Washington, DC, was less bullish than these forecasts in its evaluation of construction market business conditions that was posted with its update of the AIA Consensus Construction Forecast in mid-July. AIA is predicting a +7.4% increase in nonresidential construction this year, followed by a marked decrease to +2% in 2025.
This forecast is developed with the estimates of nine construction economists from Dodge Construction Network, S&P Global Market Intelligence, Moody’s Analytics, FMI, ConstructConnect, Associated Builders and Contractors, Wells Fargo Securities, Markstein Advisors and Piedmont Crescent Capital. There’s approximately a 4-point swing in their non-residential construction forecasts for 2024, ranging from +5.2% on the low end (Dodge Construction Network) to +9.9% on the high end (Associated Builders and Contractors). There’s an even broader 10.7-point swing in their 2025 nonresidential forecasts. Three forecasters see declines: S&P Global, Market Intelligence (-2.7%); Moody’s Analytics (-0.7%); and ConstructConnect (-0.1%). Associated Builders and Contractors came in the highest at +8%.
AIA said in its Consensus Construction Forecast analyst, “Construction spending, while continuing to increase, has seen the pace of growth slow so far this year, and this slowdown is expected to continue through this year and into 2025. Indications of a continued slowdown include a challenging lending market for construction projects, continued weakness in commercial property values and ongoing softness in billings at architecture firms.”
The AIA post, published in July before the 50-point Federal rate cut also said, “Currently, lending rates are significantly changing the calculations of project feasibility. The Federal Reserve Board’s survey of senior loan officers documents the tighter lending standards for commercial real estate lending.
“A significant net share of banks reported tightening standards for all types of commercial real estate (CRE) loans. Meanwhile, a moderate net share of banks reported weaker demand for construction and land development loans, while significant net shares of banks reported weaker demand for loans secured by nonfarm nonresidential and multi-family residential properties. The most cited reasons for tightening credit policies on CRE (commercial real estate) loans were less favorable or more uncertain outlooks for CRE market rents, vacancy rates and property prices.”
AIA’s Architecture Billings Index (ABI), a monthly indicator of construction spending nine-to-12-month in the future, is also signaling weakness. “Quarterly billings at architecture firms have been declining since the fourth quarter of 2022, according to the AIA/Deltek Architecture Billings Index (ABI),” said Kermit Baker, AIA’s chief economist, in a recent analysis. “However, the pace of decline – though volatile — has begun to accelerate over the past 10 months. Firms that specialize in the multi-family residential market have seen the steepest downturn in billings, followed by those specializing in commercial/industrial activity. Firms with an institutional specialization have generally seen revenue levels hold steady, although there has been emerging weakness in recent months. Given that both new design contracts and project inquiries at architecture firms have been about as weak as billings, prospects for a turnaround in design activity do not appear to be imminent.”
One of the best indicators of the health of the office market are vacancy rates. The rule of thumb for years has been that markets with vacancy rates of 10% or below are primed for new office construction, while markets with vacancy rates of 20% or higher don’t see many new offices being built. Since the COVID-19 era and the move toward remote offices vacancy rates have skyrocketed, and we see few metropolitan areas with office vacancy rates as low as 10%.
The Colliers 2Q 2024 U.S. office vacancy report tell a remarkable story, with only three of the nation’s largest market areas logging office vacancy rates less than 20% -- New York, NY; Miami, FL; and Silicon Valley, CA. In that report, Colliers said the office vacancy rate in the San Francisco, CA, metropolitan area touched 30%. Houston, TX, was also near that high mark.
At least one commercial real estate firm thinks the office market may have bottomed out. The JLL U.S. Office Markets Dynamics-Q3 2024 report said, “The U.S. office market reached an important milestone in Q3 2024. With the concurrent acceleration in leasing activity and slowdown of new supply, availability levels have begun to decline for the first time in over five years. Leasing activity continued to grow after establishing a post-pandemic high last quarter, and downsizing activity is steadily normalizing as tenants become more comfortable with their existing office footprints. At the same time, new supply has fallen dramatically, and a record volume of inventory is being removed for conversion and redevelopment, leading to a tightening office market nationally for the first time since 2019.”
If you want to get a sense of the impact of remote officing on office life in the nation’s largest cities, look no further than Kastle’s Back to Work Barometer, which calculates office occupancy based on the number of swipes of its access card in 2,600 buildings in 138 cities. In a recent report, its 10 largest metropolitan areas (New York, NY: Austin, TX; Dallas, TX; Los Angeles, CA; Chicago, IL; Washington, DC; Houston, TX; Philadelphia, PA; San Jose, CA; and San Francisco, CA) the average midweek occupancy rate was only 51%.
You hear about offices are being retrofitting into much-need multi-family housing units in some urban areas, but the location of plumbing and HVAC systems, windows and other building structures often complicate these conversions to the point that for some office buildings a total tear-down to make space for a new building is a better option than a conversion.
WHAT'S NEW IN ELECTRICAL WHOLESALING 2025 MARKET PLANNING GUIDE
This is the first year EW’s Market Planning Guide will be published in an all-digital format, and with that change we embraced some new online mapping tools to present our local, state and national market data. We still present market summaries, sales estimates and employment data by the U.S. Census Dept. regions, as we have done over the past few years, and we used EW's sales-per-employee multipliers to develop our sales estimates.
The sales potential estimates in the regional data cover all states and the largest MSAs within those regions. Access to our sales estimates for all 300-plus MSAs is available as part of a $99 annual subscription to Electrical Marketing (www.electricalmarketing.com). These sales estimates are updated quarterly. You can subscribe online for that data and see all the other market data available at https://www.electricalmarketing.com/industry-stats/article/20916398/join-electrical-marketing. We do offer employment data for all MSAs and encourage readers to use it to develop their own sales projections if an MSA you need is not available here.
Methodology. Our survey for the Market Planning Guide did not generate enough responses to develop a national estimate in the same manner we had been doing for years. We had been taking the U.S. Census Dept.’s Census of Wholesale trade data for the electrical wholesaling industry and “moving that data forward” each year with distributor forecasts by their Census region.
To develop our 2025 national sales potential estimate, as mentioned we used the EW multiplier in combination with the latest available employment data available from the U.S. Bureau of Labor Statistics (www.bls.gov) for construction and industrial employment. We used 3Q 2024 (July 2024 – Sept. 2024 (preliminary) data. Since BLS doesn’t publish electrical contractor employment at the MSA level, we estimated it at 13% of total construction employment, its historical average.
Electrical contractors and industrials combined typically account for 75% of all electrical sales, and we use the sales-per-employee estimates for electrical contractors ($78,775 per employee) and industrial accounts ($2,650 per employee) to estimate core electrical sales. To get to our total sale estimate figures, we then add 25% on top of that estimate to cover all other distributor end-user markets (utility, government, retail, etc.)
Forecast summary. Electrical Wholesaling’s +2% growth estimate is admittedly rather pedestrian given the current health of the U.S. economy and the perception that the new Administration’s pro-businesses stance will be good for the electrical wholesaling industry. EW’s editors believe there’s more upside in sales potential that downside risk and that electrical sales in 2025 could easily grow at a much faster rate.
