Project Stress Index Rises 11.4% in May Amid Increased Abandonments

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The construction industry is experiencing a notable rise in project cancellations, driven by increasing economic pressures. In May, ConstructConnect’s Project Stress Index surged by 11.4 percent, reflecting mounting strain in the nonresidential construction sector. This increase, fueled largely by abandoned projects, highlights growing uncertainty among developers and financiers.

The PSI offers a measure of project-level risk by tracking delays, on-hold notices, and abandonments. A higher index value suggests intensifying stress across the preconstruction landscape, often in response to changes in economic or lending conditions.

Understanding the Project Stress Index

ConstructConnect’s PSI is a composite indicator that evaluates trends in delayed, suspended, and abandoned nonresidential projects. With a baseline of 100, values above that level indicate heightened stress.

In May, the index reached 122.8, its highest reading since 2019. The jump was largely attributed to a 30.3 percent increase in project abandonments compared to the previous month. While delays and on-hold rates remained relatively flat, the spike in cancellations reflects a shift in sentiment across development markets.

The private sector’s disproportionate impact

Private sector construction was hit hardest. Abandonments in this segment rose 62.6 percent month over month in May. Compared to the same time last year, the increase was 92.2 percent, underscoring how volatile the environment has become for private developers.

Public sector projects, by contrast, showed more stability. This divergence reveals deeper concerns within private investment, particularly in areas sensitive to financing costs and return-on-investment timelines. Developers are increasingly cautious, pulling back on speculative or capital-intensive projects in light of tightening financial conditions.

Economic factors contributing to project abandonments

The most prominent factor behind rising project abandonments is the cost of capital. Elevated interest rates have made financing more expensive, especially for long-duration or high-cost ventures. Lenders have also tightened criteria, prompting developers to reconsider the viability of marginal projects.

Inflation and supply chain issues continue to challenge budgets and timelines. While material prices have begun to normalize, persistent labor shortages and delivery delays contribute to risk exposure. This risk has become too great for some developers to tolerate, leading to cancellations.

The clean energy sector has been particularly affected. In recent months, over $8 billion in renewable energy projects have been either paused or canceled, reflecting hesitation tied to shifting policy incentives and rising input costs.

A rise in the PSI may suggest that the construction industry is approaching a phase of reduced momentum. The pipeline for future projects could contract, leading to ripple effects throughout the ecosystem. Reduced demand may impact engineering firms, material suppliers, and service providers who rely on steady project flow.

The Project Stress Index serves as a critical metric for forecasting shifts in the construction sector. May’s data, particularly the surge in abandonments, is a signal that caution has taken hold across many private markets.

Sources:

• ConstructConnect: Project Stress Index rises 11.4% in May