Dodge Report: Nonresidential Building Pulls Back After a Strong September

New construction starts in October decreased 4% 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% from its average for August and September, it remained 15% 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 CA and the $850 million State Highway 288 Tollway project in the Houston TX area. For the first ten months of 2016, total construction starts on an unadjusted basis were $572.0 billion, down a slight 1% from the same period a year ago. If the volatile manufacturing plant and electric utility/gas plant categories are excluded, total construction starts during this year’s January-October period would be up 3%.
October’s data produced a reading of 144 for the Dodge Index (2000=100), compared to 149 in September and 152 in August. The quarterly averages for the Dodge Index in 2016 show the first quarter at 149, the second quarter at 138, and the third quarter at 142, with the average over the first nine months of the year coming in at 143. October’s pace for total construction starts, while down from August and September, is still up from the third quarter.
Nonresidential building in October fell 16% to $236.9 billion (annual rate), following gains in August (up 40%) and September (up 5%). The commercial building categories as a group were down 25% after surging 37% in September which reflected an especially strong month for new office projects. October showed a 46% decline for office construction, following its 147% 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 NY, a $250 million Facebook data center in Los Lunas NM, and a $190 million office building in Denver CO. Warehouse and store construction registered similar declines in October, sliding 10% and 11% respectively, although the warehouse category did include the start of a $165 million Amazon distribution center in Jacksonville FL. On the plus side, hotel construction grew 10% 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% in October, reflecting the start of a $300 million consolidated car rental facility at the Honolulu HI International Airport.
The institutional building categories as a group dropped 21% in October, following a 9% gain in September and a 21% hike in August. The educational facilities category fell 19%, although October did include these projects – the $160 million renovation and expansion of the Philadelphia Museum of Art in Philadelphia PA, 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 NY. Healthcare facilities plunged 47% 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 NY. Of the smaller institutional categories, declines were reported in October for amusement-related work, down 4%; religious buildings, down 12%; and transportation terminals, down 15%. The public buildings category in October registered a 16% gain, reflecting $100 million for phase 2 of the San Ysidro Border Station in San Ysidro CA. The decline for total nonresidential building in October was cushioned by a 250% surge for the manufacturing plant category, boosted by the start of a $1.4 billion ethylene plant in Louisiana.
Nonbuilding construction in October increased a slight 1% to $152.4 billion (annual rate), as a 21% gain for public works balanced a 46% drop for electric utilities/gas plants. The public works advance was led by a 168% surge for the “miscellaneous public works” category, which featured the start of the $1.7 billion Mid-Coast Corridor Transit Project in San Diego CA, which will extend trolley service in the San Diego area. Highway and bridge construction in October slipped 4% after rising 16% in September which reflected the boost coming from the $916 million segment of the Loop 202 (South Mountain Freeway) project in the Phoenix AZ area. October did include the start of the $850 million State Highway 288 Tollway project in the Houston TX area. The environmental public works categories weakened in October, with sewer systems down 8%, water supply systems down 14%, and river/harbor development down 19%. The 46% drop for electric utilities/gas plants in October followed a sharp 219% increase in September, although October still included the start of several large projects, such as a $450 million wind farm in Missouri.
The 1% retreat for total construction starts on an unadjusted basis for the January-October period of 2016 came as the result of a varied pattern by major sector. Nonresidential building year-to-date matched the same period a year ago, with commercial building up 10%, institutional building even with last year, and manufacturing building down 36%. Residential building year-to-date rose 5%, with single family housing up 7% and multifamily housing up 1%. Nonbuilding construction year-to-date fell 11%, with public works down 3% and electric utilities/gas plants down 28%. By geography, total construction starts during the first ten months of 2016 showed this performance relative to a year ago – the Midwest and West, each up 7%; the South Atlantic, up 6%; the Northeast, down 3%; and the South Central, down 18% (due to this region’s comparison to last year which included the start of several massive liquefied natural gas export terminals).

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