October Construction Starts Recede 4 Percent


New construction starts in October decreased 4 percent 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 percent from its average for August and September, it remained 15 percent 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. 

“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 A. 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 percent through the first ten months of this year. This compares with the 3 percent decline at the nine-month mark, the 7 percent decline at the eight-month mark, and the 11 percent 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,” Murray continued. “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 percent to $236.9 billion (annual rate), following gains in August (up 40 percent) and September (up 5 percent). The commercial building categories as a group were down 25 percent after surging 37 percent in September, which reflected an especially strong month for new office projects. 

October showed a 46 percent decline for office construction, following its 147 percent hike in September, which featured the start of two massive office towers in New York City – the $2.0 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, N.Y.; a $250 million Facebook data center in Los Lunas, N.M.; and a $190 million office building in Denver.

Warehouse and store construction registered similar declines in October, sliding 10 percent and 11 percent, respectively, although the warehouse category did include the start of a $165 million Amazon distribution center in Jacksonville, Fla. On the plus side, hotel construction grew 10 percent 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 percent in October, reflecting the start of a $300 million consolidated car rental facility at the Honolulu International Airport.

The institutional building categories as a group dropped 21 percent in October, following a 9 percent gain in September and a 21 percent hike in August. The educational facilities category fell 19 percent, although October did include these projects – the $160 million renovation and expansion of the Philadelphia Museum of Art in Philadelphia, 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. 

Healthcare facilities plunged 47 percent 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, N.Y. 

Of the smaller institutional categories, declines were reported in October for amusement-related work, down 4 percent; religious buildings, down 12 percent; and transportation terminals, down 15 percent. The public buildings category in October registered a 16 percent gain, reflecting $100 million for phase 2 of the San Ysidro Border Station in San Ysidro, Calif. 

The decline for total nonresidential building in October was cushioned by a 250 percent 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 percent in October. Single-family housing advanced 6 percent, strengthening after a 3 percent decline in September. By geography, single family housing in October showed increases in all five major regions – the South Central, up 10 percent; the Midwest, up 9 percent; the Northeast, up 6 percent; the West, up 4 percent; and the South Atlantic, up 3 percent. 

Multifamily housing in October climbed 5 percent, strengthening moderately after an 18 percent slide in September. There were 11 multifamily 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, a $218 million apartment building in Queens, N.Y., and a $200 million condominium building in Sunny Isles Beach, Fla. 

Nonbuilding construction in October increased a slight 1 percent to $152.4 billion (annual rate), as a 21 percent gain for public works balanced a 46 percent drop for electric utilities/gas plants. 

The public works advance was led by a 168 percent surge for the “miscellaneous public works” category, which featured the start of the $1.7 billion Mid-Coast Corridor Transit Project in San Diego. Highway and bridge construction in October slipped 4 percent after rising 16 percent in September, which reflected the boost coming from the $916 million segment of the Loop 202 (South Mountain Freeway) project in the Phoenix area. October did include the start of the $850 million State Highway 288 Tollway project in the Houston area. 

The environmental public works categories weakened in October, with sewer systems, down 8 percent; water supply systems, down 14 percent; and river/harbor development, down 19 percent. The 46 percent drop for electric utilities/gas plants in October followed a sharp 219 percent increase in September, although October still included the start of several large projects, such as a $450 million wind farm in Missouri.