Construction starts soar in January, Dodge says; airport projects take off; ABI slips
On Tuesday, February 28, at 1:30 PM EST, Ken Simonson will moderate a webinar covering a new report on construction productivity, to be released that day by the McKinsey Global Institute (MGI). Co-lead researcher and MGI Senior Fellow Jan Mischke will present the findings, followed by comments by Michigan State University Professor Dale Belman and listener Q&A. The webinar is hosted by the National Association for Business Economics (NABE) Real Estate/Construction Roundtable. Registration for the webinar is complimentary. Register here.
The value of construction starts jumped 12% from December to January at a seasonally adjusted annual rate, Dodge Data & Analytics reported on Wednesday. "After losing momentum during last year's fourth quarter, nonresidential building strengthened in January, with much of the lift coming from the start of the $3.4 billion Central Terminal Building at LaGuardia Airport in New York [LGA] as well as groundbreaking for several other large airport terminal projects." Nonresidential building starts increased 16% from December and 27% year-over-year (y/y) from January 2016 (not seasonally adjusted). "Nonbuilding construction bounced back [up 44%] from a subdued December, with the boost arising from a $750 million natural gas-fired power plant in Florida plus two pipeline projects—the $900 million Plains Diamond oil pipeline in Arkansas and Oklahoma, and the $767 million Presidio Crossing natural gas pipeline in Texas." Nevertheless, nonbuilding construction starts were down 37% y/y. "Residential building edged upward [1%] in January as the result of a slight gain for single family housing. On an unadjusted basis, total construction starts in January were...down 3% from the same month a year ago which included especially strong amounts for the often volatile manufacturing plant and electric utility/gas plant categories. If manufacturing plants and electric utilities/gas plants are excluded, total construction starts in January would be up 10%" y/y.
The Airport Consultants Council (ACC) issued a report on Tuesday on expected trends in airport utilization over the next five years, including a detailed analysis of construction plans at 50 large airports. "The total sum identified across all capital projects was approximately $70 billion....the leading project categories are Terminal (New) and Terminal (Expansion or Renovation), with a combined share of nearly 70% of total investment for the Large and Medium Hubs. [Multi-billion dollar] new terminal projects are underway or planned at [LGA] ($8.5b), Salt Lake City ($2.9b), [San Francisco] ($2.4b), Newark ($2.3b) and San Diego ($2.3b), with similarly significant renovations/expansions planned at Los Angeles (LAX), Atlanta, Portland and elsewhere....Major terminal projects are [also] underway or planned at Columbus,...Houston (IAH),...New Orleans, Orlando, Philadelphia, San Antonio....Spending on new terminals slightly outpaces that of renovations, $26.4 billion to $20.6 billion." In addition, "Airport Access projects make up a tenth of the total investment of the sample (#3 of the categories), led by the $2.7b Automated PeopleMover and associated projects planned for LAX. [Consolidated rental car] facilities make up 5% of the total investment of the sample, as such facilities are becoming as sophisticated as airport terminal projects. LAX is planning a $1b [facility], with the City of Chicago planning to invest nearly $800" million at O'Hare. Airfield pavement projects are "abundant, [but] these less complicated projects tend to require less total investment, which is why they only reflect an 8% share, split evenly between new pavement and rehabilitation."
The Architecture Billings Index (ABI) "dipped slightly into negative territory [49.5] in January, after a very strong showing [55.6] in December," the American Institute of Architects (AIA) reported on Wednesday. The ABI measures the percentage of surveyed architecture firms that reported higher billings than a month earlier less the percentage reporting lower billings; any score over 50 indicates billings growth. "'This small decrease in activity, taking into consideration strong readings in project inquiries and new design contracts, isn't exactly a cause for concern,' said AIA Chief Economist Kermit Baker....'The fundamentals of a sound nonresidential design and construction market persist.'" AIA says the index "reflects the approximate 9-to-12 month lead time between architecture billings and construction spending." Trends varied by practice specialty (based on three-month moving averages): institutional, 54.6, up from 53.0 in December; commercial/industrial, 53.4, up from 52.7; mixed practice, 48.1, down from 49.2; and residential (mainly multifamily), 48.1, down from 48.6.
Housing starts in January decreased 2.6% at a seasonally adjusted annual rate from the December rate but climbed 10% y/y, the Census Bureau reported on February 16. Single-family starts rose 1.9% for the month and 6.2% y/y. Multifamily (buildings with 5 or more units) starts declined 7.9% for the month but leaped 26% y/y. Building permits, a fairly reliable predictor over time of near-term starts, increased 4.6% for the month and 8.2% y/y. Single-family permits slipped 2.7% for the month but increased 8.2% y/y. Multifamily permits leaped 24% for the month, after plunging for two months, and rose 4.7% y/y.
In its latest quarterly analysis of occupancy and rent trends for five commercial property types in 55 metro areas, Dividend Capital Research reported today that occupancy "improved 0.1%" in the fourth quarter of 2016 for office, industrial, retail and hotel properties but declined 0.3% for apartments. Nationally, apartments were deemed to be in "hypersupply," characterized by continuing new construction despite increasing vacancies. Suburban offices were listed as in "recovery," marked by declining vacancy with no new construction. All other property types were in "expansion," with new construction but declining vacancy. Despite the decline in apartment occupancy, "We want to continue to emphasize that demand is expected to be strong for apartments from the growing millennial generation getting out of school, getting jobs and waiting longer to buy homes. The challenge continues to be the higher-than-needed new construction in most of the cities covered. This construction was focused on downtown locations for the past five years, but has now shifted to suburban locations with good transit access, as many millennials no longer want to pay high downtown rent prices....the apartment market could move back into the growth phase of the cycle if new construction slows."