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New Construction Starts in October Climb 13 Percent

New construction starts in October advanced 13 percent to a seasonally adjusted annual rate of $591.1 billion, according to Dodge Data & Analytics. The increase follows the lackluster performance for construction starts during August and September, when activity fell to the lowest levels reported so far in 2015.

Highway and bridge construction in October receded 5 percent.

Much of October’s gain for total construction was due to a sharp rebound by nonresidential building, with additional support coming from a moderate upturn for housing as the result of further strengthening by multifamily housing. At the same time, the nonbuilding construction sector (public works and electric utilities/gas plants) settled back in October, reflecting a decreased amount of power plant projects.

“The healthy increase for construction starts in October alleviates concern about a stalling expansion that may have arisen with the sluggish activity in August and September,” stated Robert A. Murray, chief economist for Dodge Data & Analytics. “The construction start statistics do show volatility on a month-to-month basis, and as a result trends in the near term are rarely smooth. On balance, though, factors within the economic and political environment still point towards the continued expansion for construction. For the nonresidential building market, the primary drivers for its commercial and institutional building segments remain positive. The U.S. economy continues to register moderate job growth, vacancy rates are receding, rents are rising, and construction-related bond measures at the state level are getting passed. For residential building, multifamily housing is still a target for investors while Millennials are lifting the demand for apartments. For public works, there’s been solid progress made by Congress towards finalizing the next federal multiyear transportation bill and there’s less uncertainty with the selection of Paul Ryan as the new Speaker of the House of Representatives, although fiscal 2016 appropriations still need to be passed.”

Nonresidential building in October jumped 32 percent to $200.7 billion (annual rate) after a weak September, returning activity to the level that was reported back in June following three months of decline. The commercial building categories as a group soared 49 percent in October, reflecting across-the-board gains.

Store construction surged 56 percent, pushed upward by the $561 million expansion and renovation of the Westfield Century City Mall in Los Angeles. Office construction advanced 45 percent, helped by the start of two large data center projects – the $570 million Facebook data center (phase 1) in Ft. Worth, Texas, and the $300 million expansion to the Google data center in Lithia Springs, Ga.

More typical office projects that reached groundbreaking in October included a $400 million office building in New York, a $128 million addition and renovation to an office building in Washington, D.C., and a $100 million corporate headquarters in Des Moines, Iowa.

Hotel construction grew 28 percent, aided by the start of the $350 million McCormick Place Marriott Marquis Hotel in Chicago and the $87 million Renaissance Legacy Hotel in Plano, Texas. Warehouse construction improved 24 percent, supported by the start of the $130 million Dollar Tree distribution center in Cowpens, S.C., plus two Amazon distribution centers located in San Marcos, Texas ($90 million) and Fall River, Mass., ($45 million). And, the garage and service station category contributed to October’s commercial upturn, climbing 119 percent due to the start of two large consolidated rental car facilities located at Chicago’s O’Hare International Airport ($400 million) and San Antonio’s International Airport ($106 million).

The institutional side of the nonresidential building market climbed 23 percent in October. The educational facilities category increased 21 percent, led by the start of the $285 million Rockefeller University River Campus in New York and a $70 million science lab at the University of Tennessee in Knoxville, Tenn.

October also featured the start of several large high schools, including projects located in Cypress, Texas, ($120 million), Frisco, Texas, ($86 million), and Charleston, S.C. ($64 million). Healthcare facilities in October rose 18 percent, as three projects valued in excess of $100 million reached groundbreaking – a $160 million hospital addition in Phoenix, a $139 million hospital addition in Livingston, N.J., and a $138 million medical center in O’Fallon, Ill.

Of the smaller institutional categories, October gains were registered by public buildings, up 25 percent; amusement-related work, up 17 percent; and churches, up 5 percent. Transportation terminal work was the one institutional category to report an October decline, sliding 5 percent. The manufacturing building category also lost momentum in October, retreating 15 percent, although the latest month did include the start of an $80 million manufacturing facility for Kubota in Gainesville, Ga.

Residential building, at $260.3 billion (annual rate), grew 9 percent in October. Multifamily housing bounced back 42 percent after an unexpectedly subdued September, coming within 6 percent of its average pace during the first nine months of this year. While September had just two multifamily projects valued at $100 million or more that reached groundbreaking, October had 11 such projects.

The major multifamily projects in October showed a varied geography, and the largest continued to be located in the New York metropolitan area – a $350 million apartment building in Long Island City, N.Y. The next five largest projects were located outside of the New York metropolitan area – a $270 million condominium building in Chicago, a $253 million apartment building in Seattle, two apartment buildings in Dallas valued at $156 million and $130 million respectively, and a $141 million condominium building in San Diego.

Single-family housing in October was unchanged from September, and in a broad sense has been essentially flat during the most recent six months after showing steady improvement earlier in 2015. The October pace for single-family housing remained 13 percent higher than the average monthly amount reported during 2014.

By major region, single family housing in October showed gains in the Midwest and Northeast, each up 5 percent; no change in the South Atlantic; and declines in the West, down 1 percent, and the South Central, down 5 percent.

Nonbuilding construction in October dropped 3 percent to $130.2 billion (annual rate). The reduced volume was due to a 21 percent pullback for the electric utility and gas plant category from a fairly healthy amount in September (the fifth highest during 2015’s first 10 months). Even with this retreat, October still included the start of several major power plant projects, led by a $775 million natural gas-fired power plant in Maryland, a $600 million wind farm in Nebraska, and a $402 million solar power facility in Georgia.

The public works categories in October grew 4 percent, showing further improvement after September’s slight 1 percent gain, which followed double-digit declines in July and August. The upward momentum for public works in October came from a 43 percent jump for sewer construction, lifted by a $153 million expansion to a sewage treatment plant in Hartford, Conn.; and a similar 42 percent jump for water supply construction, lifted by a $440 million pumping station at Lake Mead in Boulder City, Nev.

The third environmental public works category, river/harbor development, slipped 10 percent in October. The miscellaneous public works category, which includes such diverse project types as site work, mass transit, and pipelines, was unchanged in October from its September amount. The latest month did include the start of one noteworthy mass transit project – $223 million for phase 2 of the Dulles Corridor MetroRail project in northern Virginia.

Highway and bridge construction in October receded 5 percent, not able to regain upward momentum after the slower pace that took hold during July and August.