The 1 Percent Increase at the National Level for Total Construction Starts in 2016 Was the Result of a Mixed Performance at the Five-Region Level.
By Mark S. Kuhar
For all of 2016, total construction starts advanced 1 percent to $676.5 billion, a considerably smaller gain than the 11 percent increase reported for 2015, according to Dodge Data & Analytics. If the volatile manufacturing plant and electric utility/gas plant categories are excluded, total construction starts in 2016 would be up 4 percent, depicting a more gradual deceleration relative to the corresponding 9 percent increase in 2015.
The 1 percent increase at the national level for total construction starts in 2016 was the result of a mixed performance at the five-region level. Total construction gains were reported in the West and the South Atlantic, each up 10 percent; and the Midwest, up 5 percent. Total construction declines were reported in the Northeast, down 2 percent (which reflected the retreat for multifamily housing in the New York metropolitan area); and the South Central, down 16 percent (which reflected that region’s comparison to 2015 which included the start of several massive liquefied natural gas export terminals).
“The construction start statistics over the course of 2016 revealed a varied pattern, with the end result being a slight gain for the year as a whole,” stated Robert A. Murray, chief economist for Dodge Data & Analytics. “On a quarterly basis, growth was reported during the first and third quarters, while activity settled back during the second and fourth quarters. In a broad sense, construction activity shifted to a more mature stage of expansion in 2016, characterized by a slower rate of growth for total construction compared to the 10 percent to 12 percent gains of the previous four years.
Nonresidential Building
For 2016 as a whole, nonresidential building advanced 4 percent to $227.7 billion, regaining upward momentum after slipping 2 percent in 2015. Over the past two years the percent change for nonresidential building has been dampened by substantial declines for the manufacturing plant category, which plunged 32 percent in 2015 and then another 27 percent in 2016.
The weaker performance by manufacturing plants reflected in particular a pullback for new petrochemical plant starts after the exceptional amount that was reported back in 2014. If the manufacturing plant category is excluded, nonresidential building in 2016 would show a 7 percent increase, slightly stronger than the corresponding 4 percent gain in 2015.
The commercial categories as a group in 2016 climbed 11 percent, a faster rate of growth than the 7 percent rise in 2015. Leading the way in 2016 was office construction, increasing 21 percent as it continues to move upward from the extremely low amounts reported during the years immediately following the recession.
Large office projects that reached groundbreaking in 2016 included the $2.0 billion 3 Hudson Boulevard office building in New York; the $1.5 billion One Vanderbilt Tower also in New York; the $700 million Gotham Center Towers in Long Island City, N.Y.; a $400 million data center in Grand Rapids, Mich.; and a $293 million portion of the Toyota Corporate Campus in Plano, Texas.
The top five metropolitan areas in 2016 ranked by the dollar amount of new office starts, with their percent change from the prior year, were New York, down 2 percent; Washington, D.C., up 87 percent; Dallas-Ft. Worth, up 31 percent; Chicago, up 22 percent; and Seattle, up 54 percent.
Hotel construction in 2016 advanced 19 percent, matching its rate of growth in the previous year. Large hotel projects that reached groundbreaking in 2016 included the $465 million hotel portion of the $1.7 billion Wynn Casino in the Boston area, the $357 million hotel portion of the $530 million Gaylord Rockies Resort and Convention Center in Aurora, Colo., and the $332 million hotel portion of the $630 million Montreign Resort and Casino in Kiamesha Lake, N.Y.
Warehouse construction in 2016 improved 8 percent, continuing the upward trend that’s been present since 2011, and commercial garages grew 13 percent. Store construction was the one commercial project type not able to register an increase in 2016, sliding 8 percent as its subdued recovery of the previous five years stalled.
The institutional categories as a group increased 4 percent in 2016 following the slight 1 percent gain reported in 2015.
Educational facilities, the largest institutional category, rose 3 percent with the upward push coming from K-12 schools while college/university construction settled back from earlier gains. The top five states for K-12 school construction in 2016, with their percent change from the prior year, were Texas, up 24 percent; New York, down 5 percent; California, up 30 percent; Washington state, down 4 percent; and Minnesota, up 44 percent.
Healthcare facilities grew 9 percent, led by such projects as the $631 million Loma Linda University Medical Center in Loma Linda, Calif., and the $500 million Vassar Brothers Medical Center patient pavilion in Poughkeepsie, N.Y.
As for the smaller institutional categories, amusement-related construction posted a sizeable 25 percent gain in 2016, aided by such projects as the $3.0 billion football stadium for the Los Angeles Rams and the $974 million casino portion of the Wynn Casino.
The transportation terminal category climbed 18 percent in 2016, with the lift coming from such projects as the $663 million rail terminal cavern work at Grand Central Terminal in New York, and the $537 million North Terminal building at Louis Armstrong International Airport in New Orleans. On the negative side, 2016 declines were reported for public buildings, down 3 percent; and religious buildings, down 28 percent.
Residential Building
The 2016 amount for residential building was $287.0 billion, up 6 percent and a smaller gain than the 16 percent hike reported for 2015. Much of the deceleration was due to a considerably slower increase for multifamily housing, which grew just 3 percent as opposed to the 22 percent jump in 2015.
The nation’s leading multifamily market by dollar volume, New York, dropped 28 percent in 2016 after surging 53 percent in 2015. Multifamily construction in New York City had been supported by the 421-a program, which provided tax incentives to developers who included affordable housing in their projects.
During 2015, the pending expiration of the 421-a program contributed to developers moving up the start date for projects, while the expiration of the program in January 2016 removed the incentives. If the New York metropolitan area is excluded, multifamily housing for the nation in 2016 would be up 13 percent in dollar terms, essentially the same as the corresponding 14 percent increase in 2015.
After New York, the next metropolitan areas for multifamily housing in the top 10 by dollar volume all registered double-digit increases in 2016. Rounding out the top five markets, with their percent change from 2015, were Los Angeles, up 50 percent; Miami, up 14 percent; Chicago, up 82 percent; and Washington, D.C., up 20 percent.
Metropolitan areas ranked six through 10 for multifamily housing by dollar volume were Boston, up 45 percent; Dallas-Ft. Worth, up 22 percent; San Francisco, up 63 percent; Atlanta, up 52 percent; and Denver, up 29 percent.
Single-family housing in 2016 grew 8 percent in dollar terms, a more measured pace compared to its 14 percent gain in 2015. By geography, single-family housing in 2016 showed this pattern for the five major regions – the Midwest, up 10 percent; the South Atlantic, up 9 percent; the West, up 8 percent; the Northeast, up 5 percent; and the South Central, up 4 percent.