Nonresidential Building Retreats After October’s Substantial Gain
NEW YORK – December 18, 2015 – At a seasonally adjusted annual rate of $563.3 billion, new construction starts in November fell 5% from the previous month, according to Dodge Data & Analytics. The decline represented a partial pullback after the 13% increase reported for total construction in October, as nonresidential building lost some momentum following its improved October pace. Decreased activity was also reported for housing in November, while the nonbuilding construction sector (public works and electric utilities/gas plants) held steady. During the first eleven months of 2015, total construction starts on an unadjusted basis were $597.9 billion, up 8% from the same period a year ago.
The November statistics lowered the Dodge Index to 119 (2000=100), compared to 125 in October. November was still above the lackluster activity reported for August and September, when the Dodge Index averaged 114. “The pattern of construction starts on a month-to-month basis is rarely smooth, and on balance October and November do show improvement after the subdued activity in late summer,” stated Robert A. Murray, chief economist for Dodge Data & Analytics. “The construction expansion, while often hesitant, should be able to continue in coming months as the result of several factors. Market fundamentals for commercial real estate, namely occupancies and rents, continue to strengthen. More construction bond measures are getting passed at the state and local levels of government, particularly for school construction. A new five-year federal transportation bill was enacted in early December, and it’s estimated that federal financing support for highway and bridge construction will be up 5% next year. Congress has reached agreement on fiscal 2016 appropriations, alleviating near term uncertainty with regard to federal funding. And, while the Federal Reserve has begun to move monetary policy towards a more neutral stance, the increases in short term interest rates during 2016 are expected to be very gradual.”
Nonresidential building in November dropped 13% to $175.4 billion (annual rate), following its 33% rebound in October. The commercial building categories as a group have been the cause of much of the volatility over the past two months, sliding 29% in November after soaring 53% in October. Office construction plunged 43% in November after being lifted in October by the start of two very large data centers, valued at $570 million and $300 million respectively, and several large office buildings. The major office projects that were reported as November starts were generally smaller in scale than what took place in October, and included such projects as a $155 million insurance claims service center in Plano TX and a $70 million corporate headquarters in Rapid City SD. The garage and service station category in November decreased 39% after soaring 119% in October with the start of two large consolidated rental car facilities at Chicago’s O’Hare International Airport and the San Antonio TX International Airport. Store construction in November fell 30%, although it did include groundbreaking for a $100 million outlet mall in Daytona Beach FL, and warehouse construction retreated 13%. Hotel construction in November stayed even with its October pace, helped by the start of the $193 million hotel portion of the $400 million Eighth and Howell convention center hotel complex in Seattle WA. The manufacturing plant category in November was able to show improvement following its depressed October activity, rising 38% with the upward push coming from two automotive-related projects – a $307 million expansion to a General Motors plant in Arlington TX and a $250 million expansion to a Mercedes-Benz plant in Vance AL.
The institutional building group in November receded a slight 1% after registering 23% growth in October. Weaker activity was reported for amusement-related work, down 12%, although some support was provided by the $181 million convention center portion of the Eighth and Howell convention center hotel complex in Seattle. November declines were also reported for transportation terminals, down 19%; and religious buildings, down 4%. The educational building category in November rose 3%, showing further growth on top of the 21% increase reported in October. Large educational facility projects that reached groundbreaking in November included the $288 million health education campus at the Cleveland Clinic in Cleveland OH, a $206 million public health laboratory at the Aberdeen Proving Grounds in Maryland, and a $79 million elementary school modernization in Washington DC. Healthcare facilities in November edged up 1%, aided by the start of a $109 million hospital in the Orlando FL area. The public buildings category improved 42% in November, with the lift coming from a $45 million facility maintenance and repair project at McConnell Air Force Base in Kansas and a $43 million police headquarters in Orlando FL.
Through the first eleven months of 2015, nonresidential building was down 8% relative to the same period a year ago. Manufacturing plant construction fell 39% year-to-date, as petrochemical plant construction has retreated sharply this year following its exceptionally high amount in 2014. The commercial building group was flat year-to-date, with gains registered by hotels, up 14%; and stores, up 1%; while modest declines were reported for office buildings, down 4%; garages/service stations, down 4%; and warehouses, down 5%. The institutional building group slipped 4% year-to-date, with decreased activity reported for public buildings, down 1%; transportation terminals, down 10%; healthcare facilities, down 11%; and amusement-related work, down 12%. The educational building category, which is the largest nonresidential building structure type by dollar volume, advanced 2% in the first eleven months of 2015, while the small religious building category managed a 6% increase relative to a depressed 2014.
Residential building in November decreased 2% to $257.4 billion (annual rate). Multifamily housing retreated 6% after soaring 43% in October. There were 6 multifamily projects valued at $100 million or more that reached groundbreaking in November, fewer than the 11 such projects that were reported as construction starts in October, but still a healthy amount. Of these 6 large projects, 3 were located in New York NY (valued respectively at $218 million, $193 million, and $170 million), while the remaining 3 were located in Reston VA ($187 million), Bonita Springs FL ($146 million), and Stamford CT ($122 million). Single family housing in November was unchanged from its October pace, and for the past seven months has essentially plateaued after showing steady improvement earlier in 2015. The November pace for single family housing remained 14% higher than the average monthly amount reported during 2014.
For the January-November period of 2015, residential building was up 14% compared to last year, a stronger rate of increase than the 3% gain reported for the full year 2014. Multifamily housing climbed 17% year-to-date, continuing the upward trend that’s been underway since the first year of recovery back in 2010. The top five metropolitan areas ranked by the dollar amount of multifamily starts during the first eleven months of 2015 were – New York NY, Miami FL, Washington DC, Los Angeles CA, and Boston MA. Multifamily metropolitan areas ranked 6 through 10 were Seattle WA, Chicago IL, Dallas-Ft. Worth TX, Houston TX, and San Francisco CA. Single family housing grew 13% year-to-date, due to this pattern by major region – the West, up 24%; the South Atlantic, up 17%; the South Central, up 8%; the Midwest, up 6%; and the Northeast, up 1%.
Nonbuilding construction in November was reported at $130.5 billion (annual rate), essentially unchanged from its October amount. The public works categories as a group increased 17% in November, advancing for the second month in a row after three months of decline. The miscellaneous public works category, which includes such diverse project types as site work, mass transit, and pipelines, surged 93% in November with the boost coming from the $1.6 billion Westside Subway Extension project in Los Angeles CA. Highway and bridge construction in November climbed 16%, and included such projects as a $315 million highway reconstruction in Milwaukee WI, the $168 million replacement of the southbound deck on the Pulaski Skyway in the Newark NJ area, and a $164 million bridge in Union City PA. The environmental public works categories were mixed in November, with a 15% increase for river/harbor development but considerable declines for water supply construction, down 31%; and sewer construction, down 42%. In contrast to the latest month’s increase for overall public works, the electric power and gas plant category plummeted 59% in November. Even with this decline, the electric power and gas plant category did include two noteworthy projects as November starts – a $500 million natural gas-fired power plant in Ohio and a $169 million transmission line project in Illinois.
During the first eleven months of 2015, nonbuilding construction jumped 23% relative to a year ago. The electric power and gas plant category surged 142% year-to-date, due primarily to the start of several massive liquefied natural gas terminals in the first half of 2015. The public works group was down 1% year-to-date, given a varied performance by the individual categories – highway and bridge construction, up 13%; sewer construction, down 3%; water supply construction, down 5%; river/harbor development, down 11%; and miscellaneous public works, down 20%.
The 8% increase for total construction starts at the national level during the first eleven months of 2015 was supported by gains from all five major regions, to varying degrees – the South Central, up 18%; the Northeast, up 17%; the South Atlantic, up 3%; the West, up 2%; and the Midwest, up 1%.
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