May backlog hit highest level since 2023, but confidence fell

Why this matters

The rise in construction backlog to its highest level since 2023, juxtaposed with a decline in contractor confidence, encapsulates the current tension in US industrial real estate development. Backlogs traditionally signal robust demand and a pipeline of future activity, often attracting institutional capital seeking exposure to industrial assets, particularly logistics and data centers. Yet, the simultaneous dip in confidence suggests underlying concerns—potentially around rising input costs, labor shortages, or financing challenges—that could slow project delivery or inflate development risk premiums. The differentiation between contractors with and without data center projects underscores the sector’s bifurcation. Data centers remain a relative bright spot, buoyed by persistent demand for digital infrastructure, which continues to draw specialized capital despite broader economic uncertainties. Conversely, contractors lacking data center exposure may be contending with softer fundamentals or more volatile demand in traditional industrial segments. For allocators and lenders, this dynamic signals a nuanced landscape: while industrial remains a favored sector, selective positioning—favoring data center-linked development pipelines—may be prudent. The divergence between backlog growth and confidence decline also hints at potential volatility in construction timelines and costs, factors that could influence underwriting assumptions and risk-adjusted returns in the near term.

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