September Construction Starts Climb 10% Nationwide
New construction starts in September advanced 10% to a seasonally adjusted annual rate of $604.1 billion, according to McGraw Hill Construction, a division of McGraw Hill Financial. The increase followed an up-and-down pattern during the previous two months and brought activity to its highest level so far during 2014.
Nonresidential building registered a sharp gain, helped by an elevated pace for several institutional categories plus another brisk month for manufacturing plants, while the nonbuilding construction sector (public works and electric utilities) also strengthened. Running counter in September was a decline for residential building. During the first nine months of 2014, total construction starts on an unadjusted basis were $419.5 billion, a 5% gain compared to last year.
The September data lifted the Dodge Index to 128 (2000=100), up from a revised 116 for August and put it slightly ahead of July’s 126 (the previous high for this year).
“While the progress for construction starts has been uneven at times on a month-to-month basis, the quarterly averages show that an upward trend has been re-established,” said Robert A. Murray, chief economist for McGraw Hill Construction. “In this year’s first quarter, construction starts fell back 10% but then climbed 6% in the second quarter and another 6% in the third quarter. A key factor in keeping the construction expansion going in 2014 has been the greater role now being played by nonresidential building. Commercial building has continued to see moderate growth from low levels, and the manufacturing building category is still showing a surge of chemical and energy-related plants reach groundbreaking.
“What’s different in 2014 is that the institutional structure types are now beginning to contribute to the nonresidential building upturn,” Murray said. “In contrast, both public works and electric utilities have generally lost momentum during 2014, notwithstanding their strong showing in September. And, residential building is now providing a much smaller lift than in the past two years, as the sluggish performance by single family housing has outweighed further gains by multifamily housing.”
Nonresidential Building
Nonresidential building in September increased 15% to $228.5 billion (annual rate), after pulling back in August. The institutional building group soared 33%, with substantial support coming from a 322% hike for the amusement and recreational category, which reflected the start of the $948-million Atlanta Falcons retractable-roof stadium in Atlanta and $717 million for the casino portion of the $925-million National Harbor MGM Casino Resort in Oxon Hill, Md. Also climbing sharply in September was transportation terminal work, up 171%, led by the $240-million renovation of the 95th Street train and bus terminal in Chicago and a $144-million aircraft hangar in Wichita, Kan.
Educational facilities, the largest nonresidential building category by dollar volume, climbed 34% in September. Large projects that helped to lift the educational total included a $150-million research lab in Cambridge Mass., plus several sizeable high schools—two in Texas valued at $150 million and $100 million respectively, and a $130-million high school in Washington.Through the first nine months of 2014, the educational facilities category increased 10% from a year ago, including a 16% gain for high schools.
The public buildings category (courthouses and detention facilities) in September grew 11%, but religious buildings fell 30%. The health care facilities category in September plunged 44%, sliding back from a strong August, although the latest month did include the start of a $206-million hospital expansion in San Antonio, Texas.
The manufacturing plant category in September surged 105%, continuing to show the highly volatile month-to-month behavior that’s been present during 2014. Providing the upward push in September was the start of a $1.3-billion methanol plant in Louisiana and a $225-million tire manufacturing plant in Georgia. The commercial building group in September fell 15%, retreating from its heightened amount in August. Store construction declined 22%, after being lifted in August by the $157-million retail portion of the $957-million Nordstrom Tower in New York City.
Office construction dropped 23%, although September did include the start of such projects as a $700-million data center for Microsoft in West Des Moines, Iowa, a $250-million office tower in Chicago, a $105-million office tower in Houston, and a $100-million headquarters building for American Greetings in Westlake, Ohio.
Hotel construction in September slipped a modest 1%, with some support coming from $140 million for the hotel portion of the National Harbor MGM Casino Resort in Oxon Hill, Md. Warehouse construction was the one commercial structure type able to post a gain in September, rising 2% with the help of groundbreaking for a $90-million distribution center in Georgia.
Nonbuilding Construction
Nonbuilding construction, at $162.9 billion (annual rate), jumped 38% in September. The electric utility category, which has trended downward for the past year and a half, climbed 107% from its lackluster August pace. There were two very large electric power plant projects included as September starts—a $1.7-billion retrofit of a coal-fired power plant in Illinois and a $1.0-billion solar power facility in Nevada.
The public works project types as a whole advanced 26% in September. The miscellaneous public works category increased 83%, which reflected the start of the $834-million Regional Connector Transit Corridor light rail project in Los Angeles, a $204-million liquefied natural gas pipeline project in Tucson, Ariz., and a $150-million gas main replacement project in Hackensack, N.J.
The miscellaneous public works category in September also included groundbreaking for the $672-million Atlanta Braves baseball stadium in Smyrna, Ga. (In the Dodge classification of sports arenas and stadiums, projects with a roof are included in the amusement category while projects without a roof are included in the miscellaneous public works category.)
River-harbor development in September climbed 40%, lifted by a $117-million storm sewer project in New Orleans, while sewer construction rose 31%, with the boost coming from a $285-million wastewater treatment plant in Baltimore.
Highways and bridges each climbed 8% in September, although both are still trending downward as shown by the following year-to-dates declines—highways, down 11%; and bridges, down 21%. Water supply construction was the one public works category to lose momentum in September, sliding 27%.
Residential Building
Residential building in September dropped 9% to $212.7 billion (annual rate). Multifamily housing fell 23%, retreating from the strong activity that was reported in August. Even with this decline, September still included groundbreaking for four multifamily projects valued each in excess of $100 million. They were the following: a $266-million condominium hotel in Hollywood, Calif., the $230-million multifamily portion of a $370-million mixed-use project in Washington, D.C., a $215-million condominium complex in Honolulu and a $183-million condominium tower in Miami.
Through the first nine months of 2014, the top five metropolitan areas in terms of the dollar amount of new multifamily projects were: New York City, Washington, D.C., Miami, Los Angeles and San Francisco. Metropolitan areas ranked six through 10 were: Dallas-Ft. Worth, Boston, Houston, Seattle and Denver.
Single-family housing in September slipped 3%, marking the third straight month of modest erosion after a brief pickup in late spring, which in a broad sense maintains the flat pattern that’s been present throughout 2014. In September, weaker single-family construction was reported in the South Atlantic, down 6%; the South Central, down 4%; and the West, down 3%; while gains were reported in the Midwest and Northeast, up 2% and 4% respectively.
Murray said, “This year’s stall for single-family housing means that the lift provided to total construction is much less than what occurred during the prior two years, when single-family housing advanced 29% in 2012 and 26% in 2013. The 20% down-payment requirement, generally in effect since the end of the financial crisis, has made it difficult for lower and middle income households to get approved for a mortgage, and more attention is now being directed by federal officials at ways to expand access to home loans.”
The 5% gain for total construction starts on an unadjusted basis during the first nine months of 2014 was the result of a varied pattern by major construction sector. Nonresidential building climbed 17% year-to-date, due to this performance by segment— commercial building, up 13%; manufacturing building, up 112%; and institutional building, up 5%. Residential building grew 6% year-to-date, with single-family housing up only 1% while multifamily housing advanced 20%.
Nonbuilding construction decreased 9% year-to-date, with public works down 8% and electric utilities down 13%. By geography, total construction starts in the first nine months of 2014 revealed these gains for the five major regions—the South Central, up 15%; the South Atlantic, up 5%; the Northeast, up 4%; and the Midwest and West, each up 1%.
