Technology is Changing Construction - Don't get Left Behind
How to Keep Even the Most Disgruntled Neighbors Happy
Australia's Largest Railway Project Gets Green Light
Tighter Lending Impacts Apartment Construction
Green Living Moves into the Mainstream
Aged-Care Developments Reaching New Heights
Smart Cranes are Transforming the Jobsite
The Shaping of Australia's Future Cities Through Urban Renewal
By Duane Craig
March 27, 2017
Here is a recap of recent construction economic reports from the US, with trend highlights.
Dodge Data and Analytics reported total construction starts were down 3% in January 2017, when compared to January 2016. The company’s Momentum Index was up for five consecutive months as of February’s reading, but most of the gain was in the institutional sector. Commercial planning dropped, but by less than a percent. Most construction forecasts still call for industry growth in 2017, but forward momentum isn’t all clear sailing.
Mortenson, a construction and development services company, reported that construction costs were trending upward in 2017. It predicted nonresidential construction costs across six markets would rise between 3% and 4.5%. And, the creditworthiness of firms has shown some erosion as the Equipment Leasing and Finance Association reported increased delinquencies and charge-offs in December and January. Architectural billings have also retreated––there’s volatility in some markets, large projects are skewing the data analysis, and there’s continuing political uncertainty.
There are other leading indicators of construction activity that suggest caution, according to Alex Carrick, chief economist for ConstructConnect. He characterized construction’s “put-in-place” number for January 2017 versus January 2016 as “unexciting.” He also said that 10 of nonresidential construction’s 16 categories are slowing down relative to their 12-month performance, with some stalling out. Lodging’s spending average dropped from 25.1% to 9.1%, while office was down 14%. And, Carrick described manufacturing’s PIP investment as backsliding dramatically.
A leading indicator of the PIP numbers is construction starts. Engineering and civil starts have recently moderated, and both residential and nonresidential starts have flattened out in recent months. The leveling out for nonresidential has happened even in the face of large projects starting up.
Marc Waco, PricewaterhouseCoopers US Engineering & Construction Advisory leader, described multifamily construction as volatile in his December and January commentaries. The sector housing starts dropped 44% in November and then rose 61% in December. He predicted further weakening in multifamily as high rents continue moving people from renting to buying. Further, underpinning the weakening trend, the National Association of Realtors predicts little change in the apartment vacancy rates during the year.
Single family construction permits in December rose almost 5% over November’s, continuing that sector’s rise to prominence. Waco called single family the “strength in the overall housing sector,” calling its slight month to month dips as “a more accurate depiction of the market optimism builders have displayed in recent months.”
One concern echoed by Waco across both of his commentaries for the housing industry was the effect the new presidential administration will have on wages, employment, and immigration. Also, the 30-year conventional loan lending rate has risen 60 basis points since the election. That could inspire more people to buy now to avoid higher interest rates. The rush to buy could expand the gap between supply and demand, putting a damper on the residential expansion. A shortage of available homes means higher prices leading to fewer people qualifying. Waco noted in his commentary on the January housing reports that affordability concerns are rising due to the continued gap between supply and demand.
Longer term negative trends may already be at play as single family permits dropped in January compared to December, according to the U.S. Census Bureau. That foretells fewer completions at mid-year. Of particular note was the drop in January in the Architectural Billings Index for multifamily. With a fall of more than two points, and into negative territory, it signals a potential drop in building activity for multifamily in the coming nine months. In 2016, there was also a tightening of lending standards for commercial real estate loans. If the ABI stays in negative territory in February and March, it could foretell a longer term downward trend for multifamily housing.
In January, the Dodge Momentum Index rose about 4%, over its revised December reading. This monthly measure of the initial reports for nonresidential building projects in planning, claims to lead construction spending by a full year. Although the commercial side of nonresidential saw a 1% decline, it was more than offset by the 12.1% increase in institutional planning. This is fueling optimism about health care, educational, correctional and other public structures.
The National Association of Realtors forecasted an increased need for office space throughout 2017. Ten-X, an online real estate marketplace, views the sector differently, pointing to flatlined vacancy rates and a slump in rent growth as evidence of a downturn. However, the company highlighted the regional nature of the sector’s economics by naming Florida and the West Coast as places where office space is in demand. Inland, Cleveland, Houston, Memphis, Milwaukee, and suburban Maryland were cited as having reduced office space demand.
Beside cyclical factors driving vacancy rates, shared offices, cloud computing and remote teleconferencing are long-term headwinds for the office market. The money spent on office construction was up 31% when comparing December 2015 to December 2016, as reported by the Associated Builders and Contractors, Inc.
Overall, nine categories of nonresidential construction had spending declines when comparing January 2017 to January 2016. The ABC also reported 11 categories of nonresidential spending declined when comparing December 2015 to December 2016, and 13 categories declined when comparing December 2016 to January 2017. However, Anirban Basu, chief economist, said private nonresidential construction spending remained upbeat because of corporate confidence, busier architects, and broadly available capital in 2017.
Six Steps to Having Positive Outcomes with Angry Customers
The widest used rating system for green building is Leadership in Energy and Environmental Design (LEED), developed by the U.S. Green Building Council (USGBC). It’s no surprise, then, that major U.... Read More
July 1, 2018
Hear Brad Hyatt, Associate Professor at California State University Fresno, discuss what students are learning in school to prepare them for const... Read More
Budget. Schedule. Quality. The trifecta of a project. But balancing that trifecta isn't easy to do. Our webinar, led by construction industry exper... Read More
Building in the "Big Easy" sometimes isn't. The challenges faced by Landis Construction aren't often understood by out-of-towners, because when it'... Read More
The acquisition and maintenance of heavy machinery is a major expense for any size company, so it stands to reason that equipment is worth taking s... Read More
Estimating mistakes cost contractors plenty. And, with the demand from customers for estimates on-the-fly, the chances of missing the mark increase... Read More
In all big construction projects, time is money, and few projects drag along as painfully slow as high-rise buildings. A new method of construction... Read More
June 25, 2018