New construction starts in October decreased 4% to a seasonally adjusted annual rate of $678.9 billion, settling back from the elevated amount that was reported in September, according to Dodge Data & Analytics. Nonresidential building retreated from its brisk September pace, which was this sector’s strongest volume so far in 2016. October’s level for nonresidential building was still healthy compared to what’s been reported for much of 2016 – while down 12% from its average for August and September, it remained 15% above its lackluster average for this year’s first seven months. Residential building in October showed moderate growth, with contributions from both single family and multifamily housing.
Nonbuilding construction in October edged up slightly, as an increase for public works offset diminished activity for electric utilities/gas plants. The public works sector in October benefitted from the start of the $1.7 billion Mid-Coast Corridor Transit Project in San Diego and the $850 million State Highway 288 Tollway project in the Houston area. For the first ten months of 2016, total construction starts on an unadjusted basis were $572 billion, down a slight 1% from the same period a year ago. If the volatile manufacturing plant and electric utility/gas plant categories are excluded, total construction starts during this year’s January-October period would be up 3%.
October’s data produced a reading of 144 for the Dodge Index (2000=100), compared to 149 in September and 152 in August. The quarterly averages for the Dodge Index in 2016 show the first quarter at 149, the second quarter at 138, and the third quarter at 142, with the average over the first nine months of the year coming in at 143. October’s pace for total construction starts, while down from August and September, is still up from the third quarter.
“After a sluggish second quarter, the pace of construction starts picked up during the third quarter, and on this basis October is at least maintaining recent improvement,” stated Robert Murray, chief economist for Dodge Data & Analytics. “While there was concern earlier in 2016 that the often hesitant expansion for construction could be stalling, the generally stronger activity in August, September, and now October eases those concerns. Furthermore, the year-to-date comparisons have strengthened as 2016 has proceeded, with total construction starts now down just 1% through the first ten months of this year. This compares with the 3% decline at the nine-month mark, the 7% decline at the eight-month mark, and the 11% decline at the seven-month mark.
“Aside from stronger activity during the most recent three months, the year-to-date comparisons are benefitting from last year’s pattern for total construction starts, which showed weaker activity in the second half. The first half of 2015 had been lifted by 13 very large projects valued each at $1 billion or more, while last year’s second half saw only three such projects reach the construction start stage.”
“On balance, the current year is turning out to be one where the overall level of construction starts is at least holding steady. Supportive elements are moderate job growth, generally healthy market fundamentals for commercial real estate, and the funding coming from the state and local bond measures passed in recent years. Going forward, the continued expansion for construction should be helped by the November 2016 passage of such bond measures as the $9 billion Proposition 51 in California for school construction, and the emphasis of the incoming Trump Administration on increased spending for infrastructure.”
Nonresidential building in October fell 16% to $236.9 billion (annual rate), following gains in August (up 40%) and September (up 5%). The commercial building categories as a group were down 25% after surging 37% in September which reflected an especially strong month for new office projects. October showed a 46% decline for office construction, following its 147% hike in September which featured the start of two massive office towers in New York City – the $2 billion 3 Hudson Yards Boulevard office building on Manhattan’s west side and the $1.5 billion One Vanderbilt Tower near Grand Central Station.
While not the same scale as what took place in September, October did see the start of several large office projects, including the $700 million Gotham Center Towers in Long Island City NY, a $250 million Facebook data center in Los Lunas, NM, and a $190 million office building in Denver, CO. Warehouse and store construction registered similar declines in October, sliding 10% and 11% respectively, although the warehouse category did include the start of a $165 million Amazon distribution center in Jacksonville, FL.
On the plus side, hotel construction grew 10% in October, helped by $141 million for the hotel portion of the $170 million Great Wolf Lodge Water Park Resort in LaGrange, GA. Commercial garage construction jumped 29% in October, reflecting the start of a $300 million consolidated car rental facility at the Honolulu HI International Airport.
The institutional building categories as a group dropped 21% in October, following a 9% gain in September and a 21% hike in August. The educational facilities category fell 19%, although October did include these projects – the $160 million renovation and expansion of the Philadelphia Museum of Art in Philadelphia, PA, a $125 million science and engineering research facility at the University of Texas at Arlington, and the $93 million renovation of the Museum of Modern Art in New York, NY. Healthcare facilities plunged 47% after being lifted in September by the start of eight healthcare facilities valued each at $100 million or more. In contrast, October included just four such projects, led by the $300 million New York Methodist Hospital expansion in Brooklyn, NY. Of the smaller institutional categories, declines were reported in October for amusement-related work, down 4%; religious buildings, down 12%; and transportation terminals, down 15%.
The public buildings category in October registered a 16% gain, reflecting $100 million for phase 2 of the San Ysidro Border Station in San Ysidro, CA. The decline for total nonresidential building in October was cushioned by a 250% surge for the manufacturing plant category, boosted by the start of a $1.4 billion ethylene plant in Louisiana.
Residential building, at $289.6 billion (annual rate), grew 6% in October. Single-family housing advanced 6%, strengthening after a 3% decline in September. There were 11 multi-family projects valued at $100 million or more that reached groundbreaking in October (compared to five in September), led by a $275 million apartment building in Miami, FL, a $218 million apartment building in Queens, NY, and a $200 million condominium building in Sunny Isles Beach, FL.