The Dodge Momentum Index (DMI) decreased 5.3% in October from the revised September reading, Dodge Construction Network reported on Thursday. Commercial planning fell 6.7% and institutional planning declined 2.0%. “The DMI is a monthly measure of the value of nonresidential building projects going into planning, shown to lead construction spending for nonresidential buildings by a full year….Most commercial categories faced declines throughout October, aside from hotel planning—which continued to gain momentum. On the institutional side, education and public planning activity expanded, offset by weaker activity in healthcare, recreational and religious projects. This month, the DMI was 13% higher than in October of 2023. The commercial segment was up 18% from year-ago levels, while the institutional segment was up 3% over the same period. The influence of data centers on the DMI this year has been substantial. If we remove all data center projects from January to October, commercial planning would be down 4% from year-ago levels, and the entire DMI would be down 2%.”
Warehouse construction spending tumbled 18% from September 2023 to September 2024, the Census Bureau reported on November 1. But the market has some bright spots. “Logistics operators with roots in China are taking on more warehouse space across the U.S. amid broad changes in sourcing, manufacturing and global trade flows,” the Wall Street Journal reported on Tuesday. “Prologis, the world’s largest industrial real-estate operator, said it estimates China-based third-party logistics providers and e-commerce companies accounted for 20% of net new warehouse leasing across the U.S. this year through the third quarter, which company officials say is up sharply over recent years….Many of the logistics operators have focused on leasing space in major U.S. logistics markets near ports in Southern California, New Jersey and Savannah, Ga.” Meanwhile, “Amazon is overhauling its inbound fulfillment processes for inventory entering its logistics network, CEO Andy Jassy said” on a third-quarter earnings call Thursday, e-newsletter Supply Chain Dive reported on November 1. “The e-commerce giant has ‘made hundreds of changes to’ its U.S. inbound logistics network and opened more than 15 buildings focused on the inbound process, according to Jassy.”
“While demand for rental apartments remains strong enough to support relatively high occupancy rates in existing projects, multifamily builders and developers continue to face many significant obstacles on new projects such as higher construction costs, the cost and access to financing, and the availability of land and regulations,” the National Association of Home Builders posted on Thursday. NAHB’s quarterly survey found more developers of subsidized units, garden/low-rise, mid/high-rise, and built-for-sale units all rated current conditions poor than rated them good. “NAHB forecasts multifamily construction to remain weak for another year as the market works through a substantial number of units under construction, before beginning to move back to long-term trends toward the end of 2025.”
“Many [commercial] real estate firms have called [the third quarter of 2024 (3Q24)] the bottom of the financial cycle, and we agree with that on the price and transaction data, however, many cities and property types are at peak (not bottom) occupancies—the physical cycle,” Glenn Mueller posted in the Mueller Market Cycle Reports on November 1. “Higher costs in labor, materials, and property taxes are the biggest concerns on the income return part of real estate’s total return and are very location and property type [specific] in nature. Investment risk levels remain high in many places and property. Office occupancy declined -0.2% in 3Q24, while rents were up 0.1% for the quarter and were up 0.9% annually. Industrial occupancy declined -0.3% in 3Q24, but rents were flat for the quarter and were up 3.1% annually. Apartment occupancy decreased -0.1% in 3Q24, and rents were down -0.4% for the quarter and down -1.1% annually. Retail occupancy was flat in 3Q24, and rents were up 0.3% for the quarter and were up 2.3% annually. Hotel occupancy declined -0.2% in 3Q24, and [revenue per available room] grew 0.4% for the quarter and was up 1.4% annually.” Mueller identifies downtown and suburban office markets as being in recession, apartments in hypersupply, and other categories in expansion.
“Tech companies have recently made headlines with major nuclear deals,” David Kemp posted at the Cato Institute on Monday. “Microsoft has plans to restart a reactor at Three Mile Island, Google signed an agreement with nuclear company Kairos Power, and Amazon announced three nuclear deals with public utilities and X‑energy, which is developing its own reactor technology. Despite the flurry of attention, nothing suggests that the underlying economics of nuclear have changed. Nuclear remains expensive, and its costs likely outweigh its benefits as a zero-carbon energy source.”
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