New Construction Starts Drop 5 Percent in May According to McGraw Hill Construction Data Report

New Construction Starts Drop 5 Percent in May According to McGraw Hill Construction Data Report

NEW YORK, NY - At a seasonally adjusted annual rate of $513.4 billion, new construction starts in May dropped 5% from the previous month, according to McGraw Hill Construction, a division of McGraw Hill Financial.  The reduced pace for total construction starts reflected a moderate loss of momentum for nonresidential building and housing, while the nonbuilding construction sector eased back slightly.  The total construction decline followed two months of strengthening activity, although May's level was still above the lackluster volume registered at the outset of 2014.  For the first five months of 2014, total construction starts on an unadjusted basis were $201.5 billion, down 1% from the same period a year ago.

The May statistics lowered the Dodge Index to 109 (2000=100), compared to a revised 114 for April.  During the first two months of 2014, the Dodge Index was reported at 103.  "After the slow beginning to 2014, construction activity during March and April regained upward momentum, and May's retreat does not necessarily mean that renewed expansion is stalling," stated Robert A. Murray, chief economist for McGraw Hill Construction.  "The downturn for nonresidential building in May was the result of a sharp pullback by the often-volatile manufacturing plant category after its huge gain in April.  Residential building has often reflected the monthly up-and-down pattern for multifamily housing, which despite a setback in May can still be viewed as trending upward.  Of more concern for residential building is single family housing, which has yet to move beyond its recent plateau and resume growth.  Nonbuilding construction in May was pulled down by further weakness for electric utilities; at the same time, public works construction made a partial rebound in May after retreating during the previous two months."

Nonresidential building in May fell 5% to $192.2 billion (annual rate), sliding back following a 15% jump in April.  Manufacturing plant construction in May plunged 87% after being lifted in April by the start of several large projects, including a $3.0 billion ethylene plant in Texas.  In contrast, the largest manufacturing project reported as a May start was an $80 million manufacturer-owned research laboratory in New Jersey.  If the manufacturing category is excluded, nonresidential building would have been essentially flat in April followed by a 20% gain in May.  Commercial building showed particularly strong growth in May, climbing 31%, led by gains for offices and hotels. Office construction in May surged 94%, led by the start of the massive new headquarters for Apple Inc. in Cupertino CA, with $2.3 billion estimated for the office portion of the project's $2.5 billion construction cost.  Other large office projects that reached the construction start stage in May included a $130 million data center in Elk Grove IL and a $56 million office building in San Diego CA.  Through the first five months of 2014, the top five metropolitan areas ranked by the dollar volume of new office starts were – San Jose CA, New York NY, Houston TX, Washington DC, and Boston MA.  Hotel construction in May increased 101%, boosted by the start of two large projects – the $272 million Marriott Marquis Hotel in Houston TX and the $260 million Cleveland Convention Center Hotel in Cleveland OH.  After showing improved activity in April, both stores and warehouses retreated in May, falling 23% and 21% respectively.

The institutional side of nonresidential building increased 11% in May, helped by substantial gains for several smaller institutional structure types.  The public buildings category jumped 144%, lifted by the start of the $396 million San Diego County Central Courthouse in San Diego CA and the $200 million Stockton Courthouse in Stockton CA.  The transportation terminal category increased 81%, led by $208 million for work on the East 86th Street Station on the Second Avenue Subway Line in New York NY.  The amusement-related category advanced 17%, but church construction dropped 7%.  The largest institutional category, educational buildings, edged up 1% in May, supported by groundbreaking for such projects as a $98 million high school in Manassas VA and a $79 million high school in Leander TX.  Healthcare facilities in May slipped 5%, although the latest month did include groundbreaking for several large hospital projects, located in Huntley IL ($210 million), Barrington IL ($150 million), and Mansfield TX ($118 million).

Residential building, at $205.6 billion (annual rate), fell 7% in May.  Multifamily housing dropped 25% after a gain of similar size in April, pausing from this category's lengthy upward trend.  Even with the decline, May did see groundbreaking for five large multifamily projects valued each in excess of $100 million, located in San Francisco CA ($140 million), Los Angeles CA ($135 million), Arlington VA ($126 million), Brooklyn NY ($111 million), and New York NY ($105 million).  Through the first five months of 2014, the top five metropolitan areas ranked by the dollar volume of new multifamily projects were – New York NY, Washington DC, Miami FL, Los Angeles CA, and Boston MA.  Murray noted, "While the multifamily recovery has moved into a more mature stage, with smaller annual increases, such market fundamentals as occupancies and rents are still rising which should encourage more construction growth in the near term."  Single family housing in May was unchanged from its pace in April, and has now shown declining or flat activity in six out of the past seven months.  By region, May showed greater single family construction in the Midwest, the South Atlantic, and the West, but declines in the South Central and Northeast.  Murray indicated, "It's become apparent that the recent loss of momentum for single family housing is the result of more than just tough winter weather conditions.  While mortgage rates remain quite low, with the 30-year fixed mortgage rate settling back to 4.1% at the end of May, tight mortgage lending standards are restraining the ability of potential first-time homebuyers to purchase a home."

Nonbuilding construction in May slipped 1% to $115.7 billion (annual rate).  A 31% decline for electric utilities slightly outweighed a 5% increase for public works overall, pulling down May's nonbuilding total.  The largest electric utility projects that were entered as May starts were a $335 million wind farm in Kansas, a $200 million expansion of a gas-fired power plant in Alaska, and a $112 million gas-fired power plant in Louisiana.  For public works, substantial increases in May were reported for highways, up 23%; and bridges, up 34%; after particularly weak activity was reported for both project types during April.  Large bridge projects that were entered as May starts included a $146 million bridge renovation in Albany NY and a $132 million bridge replacement in Kentucky.  The top five states for highway and bridge construction during the first five months of 2014 were – Texas, California, Pennsylvania, Illinois, and North Carolina.  The miscellaneous public works category, which includes a diverse set of project types, jumped 72% in May, led by $294 million for rail-related site work near Grand Central Station in New York NY, a $237 million natural gas pipeline in Mississippi, and $118 million for paving and runway work at LaGuardia Airport in New York NY.  The environmental public works categories registered declines in May from the previous month, with sewers down 22%, water supply systems down 25%, and river/harbor development down 52%.

The 1% drop for total construction starts on an unadjusted basis during the first five months of 2014 relative to last year reflected modest gains for nonresidential building and housing, combined with a double-digit slide for nonbuilding construction.  Nonresidential building during the January-May period climbed 5%, resulting from increases for manufacturing buildings, up 52%; and commercial buildings, up 5%; while the institutional building segment slipped 2%.  Residential building during the first five months of 2014 grew 2%, with multifamily housing up 10% while single family housing was flat.  Nonbuilding construction in the first five months of 2014 was down 13%, with public works falling 8% while electric utilities plunged 35%.  By geography, total construction starts during the first five months of 2014 showed growth in the Northeast and South Central, each up 6%.  The other three regions registered year-to-date total construction declines – the West, down 2%; the Midwest, down 4%; and the South Atlantic, down 8%.

Source: McGraw Hill / #RealEstate #Economy

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