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The 2024 outlook for the engineering and construction (E&C) sector is cautiously optimistic despite economic headwinds from interest rates and lingering economic uncertainty. Despite these challenging economic conditions, there exists some confidence in the sector, underpinned by substantial dry powder reserves held by private equity and select large corporations, which are searching to deploy their capital to create greater value.
The real estate landscape within E&C is poised for transformation. Notably, a reversal of recent residential and commercial trends is anticipated. The resilient residential sector is poised for growth as the pace of interest rate increases slows. Meanwhile, the commercial sector faces continued challenges, marked by stagnant projects, looming refinances and the impact of continued remote work on office buildings. Additionally, companies heavily exposed to warehousing and manufacturing may encounter sales challenges due to market contractions from recent highs.
Firms with significant infrastructure exposure, particularly those specializing in engineering services, intelligent transportation, and power and telecommunications, continue to be attractive assets in this environment.
Overall, persistent risks linger for the E&C sector, including uncertainties related to interest rates, margin compression and potential defaults in commercial real estate (CRE). However, companies continue to innovate, highlighted by the early adoption of AI for competitive advantages in initial design automation.
Note: The primary M&A data source used in the year-end outlook is S&P Capital IQ. This is a change from our past outlook reports.
“Despite economic headwinds from interest rates and lingering economic uncertainty, attractive M&A opportunities remain within the E&C sector, particularly related to core infrastructure and companies leveraging technology and automation to drive competitive advantage and efficiencies.”