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November Construction Jumps 13 Percent

At a seasonally adjusted annual rate of $677.8 billion, new construction starts in November climbed 13 percent from the previous month, according to Dodge Data & Analytics (formerly McGraw Hill Construction). Nonresidential building had a particularly strong month, lifted by the start of several unusually large projects, including two massive manufacturing plants and an airport terminal redevelopment. The nonbuilding construction sector also contributed to the latest month’s surge, boosted by a liquefied natural gas facility.

Meanwhile, residential building retreated in November, as multifamily housing settled back from its brisk pace in October. Highway and bridge construction dropped 7 percent.

“After the sluggish activity witnessed at the outset of 2014, new construction starts have generally strengthened, showing an up-and-down pattern around a rising trend, with November coming in especially strong,” stated Robert A. Murray, chief economist for Dodge Data & Analytics. “While residential building has decelerated in 2014, due to the pause by single family housing, the nonresidential building sector has assumed the leading role in keeping the construction expansion going. Part of this year’s strength for nonresidential building comes from a surge of manufacturing plant projects, featuring more energy-related production facilities as well as activity from other industrial sectors. The commercial side of nonresidential building is continuing its moderate growth path, supported by further improvement in market fundamentals and greater investor interest. And, the institutional side of nonresidential building has finally turned the corner after five years of decline, aided by the improved financing climate and the passage of numerous construction bond measures in recent years.”

Nonresidential building in November soared 32 percent to $256.7 billion (annual rate). A substantial boost came from a 253 percent increase for the manufacturing plant category, maintaining the often-volatile behavior that’s been present this year.

The two largest manufacturing projects entered as November starts were a $2.5 billion lithium ion battery factory for Tesla Motors in Reno, Nev., and a $1.3 billion nitrogen urea plant in Enid, Okla. Other large manufacturing plant projects were a $375 million upgrade to a paper products mill in Brewton, Ala., and a $360 million propane dehydrogenation plant in Mont Belvieu, Texas. If the manufacturing plant category is excluded, nonresidential building in November would have still shown a moderate gain, rising 10 percent.

The commercial building group in November grew 7 percent, resuming its upward track after easing back in the previous two months. Hotel construction posted a 15 percent November gain, featuring the start of the $265 million Mohegan Hotel in Uncasville, Conn., as well as a $126 million hotel in Chicago.
Office construction advanced 7 percent, lifted by the start of the $254 million Partners HealthCare headquarters in Somerville, Mass., and the $245 million Joint Operations Center for the U.S. Army at Ft. Meade, Md. Both stores and warehouses lost momentum in November, slipping 5 percent and 7 percent, respectively.

The institutional building group in November increased 12 percent, aided by a healthy gain for transportation terminal work, up 221 percent. The transportation terminal category reflected the start of the $1.6 billion airport terminal redevelopment program in Salt Lake City.

Healthcare facilities reported a 13 percent gain in November, and included groundbreaking for such projects as the $312 million Emory Hospital Patient Tower in Atlanta and the $276 million Cleveland Clinic Cancer Center in Cleveland.

Also showing growth was the public buildings category, improving 12 percent. On the negative side, educational facilities slipped 6 percent in November, although the latest month included the $327 million expansion of the Campus Crossroads project at the University of Notre Dame in South Bend, Ind., involving three buildings for classrooms, research, and student activities. Weaker activity was also registered by churches, down 18 percent; and amusement-related facilities, down 36 percent.

Nonbuilding construction, at $182.6 billion (annual rate), advanced 22 percent in November. The electric power and gas plant category provided most of the lift, jumping 363 percent, which reflected the $3.6 billion Dominion Cove Point LNG Liquefaction Project in Maryland being entered as a November start.

Also supporting this category’s strong November volume was a $571 million natural gas-fired power plant in Virginia and a $280 million natural gas processing facility in North Dakota. The public works group in November retreated 8 percent, pulling back after an 8 percent gain in October. Along with the drop in highway and bridge construction, sewer construction plunged 58 percent.

On the plus side was a 31 percent increase for water supply construction, helped by a $150 million water pipeline and reservoir project in Texas, plus gains of 29 percent and 3 percent for river/harbor development and miscellaneous public works, respectively.

Residential building in November fell 6 percent to $238.5 billion (annual rate). Multifamily housing retreated after its strong October performance, sliding 21 percent.

Despite the decline, there were still a substantial number of large multifamily projects that reached groundbreaking in November, including 11 projects valued at $100 million or more. These were led by a $290 million residential tower in Miami, plus two apartment towers in Chicago valued at $280 million and $217 million respectively.

Single-family housing in November edged up a slight 1 percent, essentially holding steady with the flat activity that’s been present since the end of last year. Murray noted, “While there are signs that the banking sector is beginning to improve access to home mortgages, as shown by lending survey results, there has yet to be a discernible positive impact on single family homebuilding.”