Nonresidential Building Climbs Sharply; Public Works and Highways Down.
By Mark S. Kuhar
At a seasonally adjusted annual rate of $660.5 billion, new construction starts in March receded 1 percent from February’s pace, according to Dodge Data & Analytics. Total construction starts had jumped 13 percent in February, led by a huge gain for the electric utility and gas plant category.
While the dollar amount of electric utility and gas plant starts fell considerably in March, accompanied by a pullback for public works – highways retreated 8 percent – the latest month featured a substantial increase for nonresidential building as this sector is providing more evidence that it’s regaining upward momentum. In addition, residential building in March registered moderate growth, helped by the continued strength for multifamily housing.
“While March construction activity was down slightly from February, it stayed above the lackluster performance witnessed during the second half of last year that continued through January,” stated Robert A. Murray, chief economist for Dodge Data & Analytics. “What’s noteworthy about the March report is the renewed strength shown by nonresidential building, and in particular its institutional building segment. Nonresidential building had settled back 5 percent in 2015 after its 24 percent surge in 2014, reflecting not only a steep 36 percent plunge for manufacturing plant construction but also a slight 1 percent decline for institutional building. The strength shown by institutional building in March provides some indication that it’s beginning to shift back into expansion mode, helped by growth for educational facilities as well as by the start of several large transportation terminal projects. Assuming this pattern gets repeated over the course of 2016, it would be an important factor behind nonresidential building reestablishing an upward trend.”
Nonresidential building in March climbed 23 percent to $228.1 billion (annual rate), strengthening for the second month in a row after February’s 5 percent gain. The institutional building group soared 44 percent, with most of the structure types reporting growth.
Leading the way was the transportation terminal category, up 339 percent, as it was lifted by the start of two very large projects – $663 million for work on the rail terminal caverns at Grand Central Station in New York and $537 million for the new North Terminal building at Louis Armstrong International Airport in New Orleans. Other large transportation terminals included as March starts were the $132 million Andrews Federal Center bus garage in the Washington, D.C., area and the $112 million Terminal 4 expansion at Fort Lauderdale-Hollywood, Fla., International Airport.
Educational facilities, the largest nonresidential building category by dollar volume, advanced 20 percent in March. Several large university buildings reached groundbreaking, including a $131 million research building at the University of Kentucky in Lexington, Ky., and the $110 million seismic replacement of Tolman Hall at the University of California Berkeley.
|Monthly Construction Starts (Seasonally Adjusted Annual Rates, In Millions of Dollars)||March 2016||
The amusement and recreational category had a strong March, rising 38 percent with the boost coming from the $284 million casino portion of the $630 million Montreign Resort and Casino in Kiamesha Lake, N.Y., and the $192 million casino portion of the $500 million MGM Resort and Casino in Springfield, Mass. The public buildings category and healthcare facilities rebounded from weak February amounts, rising 55 percent and 53 percent, respectively. Church construction, sliding 54 percent in March, ran counter to the general upward trend for institutional building.
The commercial categories as a group increased 5 percent in March, reflecting a mixed pattern by project type. Hotel construction rose 47 percent, lifted by the $332 million hotel portion of the Montreign Resort and Casino, and support was also provided by the $78 million hotel portion of the Springfield, Mass., MGM Resort and Casino. Other large hotel projects included as March starts were the $285 million expansion of the Pechanga Resort and Casino in Temecula, Calif., and the $217 million Turnberry JW Marriott Hotel in Nashville.
Store construction in March increased 19 percent, reflecting the $140 million renovation of the Fashion Outlets of Philadelphia mall in Philadelphia and the $116 million retail space expansion at TD Boston Garden in Boston.
On the negative side, office construction retreated 27 percent in March after its 26 percent hike in February. Despite the decline, several large office projects were included as March starts, such as $293 million for work at the Toyota Corporate Campus project underway in Plano, Texas, and a $131 million office building in Atlanta. Warehouse construction also retreated in March, slipping 13 percent. The manufacturing plant category showed improvement after its weak February amount, rising 20 percent with the push coming from such projects as a $335 million carbon fiber production plant in Moore, S.C., and the $220 million Volvo auto assembly plant (phase 1) in Ridgeville, S.C.
Residential building, at $292.0 billion (annual rate), grew 3 percent in March. Multifamily housing increased 15 percent, bouncing back following a 6 percent decline in February, as it continues to proceed at a brisk pace. There were 12 multifamily projects valued at $100 million or more that reached groundbreaking in March, led by two projects in New York valued at $404 million and $308 million, respectively.
Other large multifamily projects that reached groundbreaking were a $305 million condominium tower in Sunny Isles Beach, Fla., a $243 million condominium tower in Miami, and the $229 million Transbay Block 9 multifamily development in San Francisco.
Single-family housing in March slipped 2 percent, essentially remaining close to its February pace. By major region, March showed this pattern for single family housing relative to February – the Northeast, up 6 percent; the South Atlantic, up 2 percent; the West, down 2 percent; the South Central, down 4 percent; and the Midwest, down 10 percent.
Nonbuilding Construction in March fell 30 percent to $140.4 billion (annual rate), after surging 50 percent in February. The electric utility and gas plant category retreated 38 percent from its exceptional February amount, which included the $3 billion third segment (or train) of an LNG export terminal in Freeport, Texas, as well as the start of several very large power plants.
Even with the decline, the level of activity for the electric utility and gas plant category was still fairly high in March, coming in only 3 percent below the average monthly pace reported during 2015. The latest month included the start of six large solar power projects, located in California (two projects valued at $850 million and $418 million, respectively), Utah ($450 million), Texas ($298 million), Idaho ($200 million), and Alabama ($200 million).
Other large power-related projects included as March starts were a $382 million transmission line in Wisconsin, a $275 million natural gas-fired power plant in North Carolina, and a $250 million retrofit of three coal-fired power plants in Alabama.
The public works categories as a group witnessed a reduced level of construction starts in March, sliding 24 percent from February, and down from the generally improved activity reported during the closing months of 2015. Highway and bridge construction experienced a comparatively mild 8 percent pullback, while steeper declines were reported for the environmental public works categories – water supply systems, down 27 percent; sewers, down 31 percent; and river/harbor development, down 52 percent.
The miscellaneous public works category, which includes such diverse project types as pipelines and rail-related work, fell 40 percent in March following its 16 percent gain in February.
During the first three months of 2016, total construction starts on an unadjusted basis were $141.7 billion, down 10 percent from the same period a year ago that included the start of several massive power plants and liquefied natural gas (LNG) export terminals. If the volatile electric utility and gas plant category is excluded, total construction starts on a seasonally adjusted basis in March would be up 4 percent from February, while the year-to-date comparison on an unadjusted basis would show just a modest 4 percent decline.
The 10 percent decline for total construction starts on an unadjusted basis during the first three months of 2016 compared to last year was due to a varied pattern by major sector.
- Nonresidential building dropped 9 percent year-to-date, with manufacturing plant construction, down 53 percent; institutional building, down 9 percent; and commercial building, up 5 percent.
- Residential building grew 12 percent year-to-date, with similar growth for single-family housing, up 11 percent; and multifamily housing, up 13 percent.
- Nonbuilding construction plummeted 34 percent year-to-date, with public works, down 28 percent; and electric utilities/gas plants, down 42 percent.
By geography, total construction starts for the first three months of 2016 showed a 37 percent drop for the South Central region, which last year included the start of several massive LNG terminal projects. The other four regions registered this year-to-date pattern – the South Atlantic, no change; the Midwest, up 1 percent; the Northeast, up 7 percent; and the West, up 9 percent.
Further perspective comes from looking at 12-month moving totals, in this case the 12 months ending March 2016 versus the 12 months ending March 2015. On this basis, total construction starts were up a slight 0.4 percent, as the result of this behavior by major sector – nonresidential building, down 10 percent; residential building, up 14 percent; and nonbuilding construction, down 5 percent.