Starts jump in June, Reed says; several reports point to growth in diverse segmentsin May
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The value of nonresidential construction starts in June jumped 14% compared with June 2013, Reed Construction Data reported Friday, based on data it collected. Cumulative starts for the first half of 2014 exceeded January-June 2013 starts by 2.4%. Nonresidential building starts slipped 3.1% year-to-date, with a 14.5% drop in commercial starts offsetting gains of 5.9% for institutional buildings and 13.5% for industrial (manufacturing). Heavy engineering starts rose13% year-to-date.
The Dodge Momentum Index “gained 3.3% in June, its third consecutive increase following hesitation in February and March,” McGraw Hill Construction reported last Wednesday. The index is “a monthly measure of the first (or initial) report for nonresidential building projects in planning, which have been shown to lead construction spending for nonresidential buildings by a full year. The Dodge Momentum Index appears to be recovering from the weather-induced softness early in the year. Aided by this recent strengthening, the Momentum Index was a healthy 22.6% higher in June than a year earlier. Moreover, the growing volume of projects at the planning stage suggests that nonresidential construction starts should be headed higher over the remainder of the year. This month’s increase in the Momentum Index was the result of a strong 8.3% surge in commercial building plans. At the same time, the institutional side of the market retreated in June, with new projects at the planning stage slipping 4.0%.”
“Due to growth in shale gas production, there has been—and continues to be—a significant increase in capital investment, by chemical and other manufacturing industries, with the possibility of hundreds of billions in new domestic investments, which will drive new business and job growth,” the American Chemistry Council (ACC) Economics Department wrote Friday in its Weekly Economic Report. “ACC maintains a list of shale-related chemical projects announcements and updates it weekly. Our current list of chemical industry projects totals 188 projects, representing cumulative capital investments totaling $116.9 billion in the U.S.”
“Investment in industrial real estate on the East Coast has soared, particularly near the ports which are expected to be able to accommodate the bigger [container] ships, called post-Panamax vessels,” once widening of the Panama Canal is completed in early 2016, the Wall Street Journal reported last Wednesday. “There are more than 12 million square feet of new industrial space under construction at eastern and southern ports that are expected to be able [to] handle post-Panamax ships, according to Cassidy Turley,” a commercial real-estate firm. “While construction in Norfolk has been limited, Baltimore has 4.9 million square feet of new space on the way. In northern New Jersey, which jointly operates its port with New York, there are an additional 2.6 million square feet of new warehouse space being built….Though not yet ready, the ports of Houston, Charleston, S.C., Savannah, Ga., Miami and the Port of Everglades in Fort Lauderdale all are expected to be by 2016. There is new warehouse space under construction in all of these markets.” In addition, “Houston leads all but three U.S. metropolitan areas in the construction of industrial space, with more than 4.7 million square feet under way.”
Plans approved in June by Cleveland’s city council for a $700 million downtown waterfront development illustrate trends occurring in many metro areas. “Developers increasingly are looking at downtown waterfronts in smaller cities such as Cleveland where prices are still low and returns could be high, said Christopher Leinberger, a visiting fellow at Brookings Institution who specializes in land-use strategy,” the Journal reported on Wednesday. “Backers of the project and real-estate-industry officials in Cleveland…point out that demand has been increasing for rental apartments in the city, which is beginning to attract young workers and others interested in a more urban lifestyle. The downtown’s population has risen by 88% since 2000 to more than 12,500, according to a Downtown Cleveland Alliance report published in April. [Cumberland Development, LLC] hopes to add a school, boutique hotel and restaurants to the lakefront, which hasn’t yet seen the benefits of that downtown growth…. With an office-vacancy rate of 18.5%, Cleveland’s developers have chosen to turn old office space into apartments rather than build new construction.” However, “the big question now is whether the developer can secure construction financing. [If the developer] can pull it off, it would be an important sign that lenders are getting more willing to take risks on construction projects…. Construction and development loans held by U.S. banks in the first quarter were just $214 billion, a third of the prerecession peak of $632 billion, according to the Federal Deposit Insurance Corp.”
Local construction union settlements in the first half of 2014 averaged 2.2% for the first year of contracts, the Construction Labor Research Council reported last week. “Increases to date, both as percents and dollar amounts, were very similar to 2013 and slightly higher than increases in 2012….The most common settlement so far in 2014 was 2.6-3.0%. In 2012 and 2013 the most common settlement was lower, 2.1-2.5%.” The median settlement was 1.9%. “The median is the rate at which half of the agreements are higher and half are lower and is less affected by outliers” than is the average (mean).
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