December 6, 2010
Nation's Building News

The Official Online Newspaper of NAHB

Commercial Building
Nonresidential Construction Remains Weak in October as Builders Seek Financing

Just as in the home building sector, commercial builders this fall have been severely restrained by their inability to obtain financing, as evidenced by McGraw Hill Construction's report on construction activity in October.

Released on Nov. 19, the monthly study found that the value of new construction starts edged up 2% in October to a seasonally adjusted annual rate of $413.8 billion. However, much of the upward tilt was provided by nonbuilding construction comprised of public works and electric utilities.

Public works have been moving at a decent clip in 2010, with prospects for 2011 less favorable because of fading stimulus support from the government.

In the meantime, McGraw Hill reported that commercial building is still in the process of bottoming out and “the emerging recovery for housing has proven to be halting.”

Carl Harris, chairman of the NAHB National Commercial Builders Council, said the McGraw Hill findings mirrored what his company has been seeing in Wichita, Kan., and the surrounding region.

“The areas that show growth continue to be the areas funded with governmental and quasi-governmental dollars — primarily schools and hospitals — while those funded with market dollars and demand — such as offices and manufacturing — have been falling.”

With the exception of a few fast-food expansions, Harris said that the projects his company has under contract are almost entirely governmental projects — a fire station, schools and a small convention center.

Ted L. Clifton, of CVH, Inc. in Coupeville, Wash., reported similar conditions in the Pacific Northwest, with less than stellar prospects for the year ahead.

“2011 is set to be a very scary year for all builders, but commercial builders especially,” said Clifton. “Diversification is still the key to a successful business model in most markets.”

On the residential building side, McGraw Hill reported building starts volume at an annual rate of $120.1 billion in October, up 3% from the prior month, with the improvement led primarily by a 10% advance in multifamily housing. This was the sector’s second consecutive monthly gain after it lost momentum midyear.

Large multifamily starts contributing to October’s gain were a $99 million condominium project in San Francisco, a $52 million mixed-use project in Marina Del Rey, Calif., and a $42 million apartment project in Washington, D.C. Through the first 10 months of 2010, multifamily housing dollar volume was up 4% nationwide, with noteworthy increases of 101% in San Francisco, 75% in Boston, 31% in Los Angeles and 8% in Washington, D.C.

Bernard Markstein, NAHB’s senior economist and vice president, said that “spotty improvement in the availability of funding has allowed a few multifamily projects to proceed, giving this sector a slight lift.”

However, Markstein said, “difficulty in obtaining financing is acting as a drag on both residential and non-residential construction. On the non-residential side, it is primarily funding for government projects that is providing any significant activity. The rest of non-residential construction is bouncing along the bottom — a very low bottom at that.”

McGraw Hill showed nonresidential building volume dropping 9% in October to an annual rate of $147.8 billion.

After a 26% increase in September that included the start of a $290 million corporate headquarters, office construction dropped 47% in October, when the largest start was a $35 million federal government building in Phoenix, according to McGraw Hill. Similarly, manufacturing plants fell 60% in October following a September jump of 70%.

Diminishing activity in October included declines of 9% in dormitories, 6% in stores and shopping centers and 4% in amusement-related facilities. Warehouse construction in October was unchanged from the previous month.

Generally heading down for most of this year, educational facilities climbed 26% in October, bolstered by large projects in Bethesda, Md.; Richmond, Va.; and Natick, Mass.

To read McGraw Hill's news release on October construction, click here.

For information on resources available from the NAHB National Commercial Builders Council, e-mail Kisha DeSandies at NAHB, or call her at 800-368-5242 x8455.

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