The Official Online Weekly Newspaper of NAHB
New construction starts figures for March from McGraw Hill Construction suggest that commercial construction remains in a state of limbo — no longer spiraling down into the depths of recession but still a considerable distance away from truly healthy levels of activity.
At first glance, the news from McGraw Hill, released on April 20, was especially favorable for nonresidential building starts, which jumped 25% in March to an annual rate of $165.5 billion.
However, the year got off to a shaky start for nonresidential production, with the starts for January and February averaging 14% below the monthly average for all of 2010.
On a quarterly basis, according to statistics from McGraw Hill, nonresidential building in the first quarter of 2011 was down 2% from the fourth quarter of 2010, “depicting a market that’s still receding but beginning to stabilize.”
Commercial Builders Waiting for Better News
"We are all desperately waiting for good news and try to dig it up at every opportunity," said Ken Ringe, president of Bayview Construction Corp. in Stuart, Fla.
"There are a lot of approved commercial projects waiting to be taken off the shelf and built," Ringe said.
Unlike busier times when it was a long process obtaining needed project approvals from the government, in today's considerably slower marketplace "most commercial entrepreneurs have their approvals in hand and are awaiting the rebound," he said.
"Of course, financing and the availability of capital remains the largest single factor holding back the recovery, but a lot of banks are opening their range to include products like credit lines again," he said.
Ringe predicted that it may not be long before financial restraints begin to loosen, "and when they do," he said, "builders will have more projects ready to go than anytime I can remember."
Current conditions in Coupevill, Wash., the home of Ted Clifton's company, Clifton View Homes, Inc., are even more sobering.
"We are seeing the worst year ever for all lines of construction in our area," Clifton said. "I have not seen any non-residential work in over a year, not even a remodel or tenant improvement."
Residential builders in the area have been keeping themselves busy with small remodeling projects, he said, but they are not enough to sustain a business.
And the tight lending situation is critical. "The flow of money has completely dried up around here," Clifton said. "Everyone would like to do something, but nobody has any money to do it with."
Gains in Nonresidential Structures
Offering some encouragement, McGraw Hill reported that most of the nonresidential structure types saw gains in March, although in many cases this reflected a boost coming from large projects.
At the top of the list, the starts volume of office construction surged 87% in March, lifted by the start of a $1.1 billion data center in Utah for the National Security Agency.
Manufacturing plants climbed 42% in March, helped by the start of a $900 million semiconductor plant in Oregon.
Store construction in March rose 37%, supported by $245 million for work on the retail portion of the Revel Resort Hotel and Casino in Atlantic City, N.J.
Warehouse and hotel construction were up 67% and 43%, respectively in March, with some assistance from large projects that were more moderate in scale.
On an unadjusted basis, commercial building was up 18% during the first three months of 2011.
“For nonresidential building, there’s still the downward pull coming from the institutional categories, but on the plus side commercial building seems to have already reached bottom, and the gains for commercial building in March would appear to be a positive development going forward,” said Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction.
“The note of caution for commercial building is that market fundamentals such as occupancies have only just begun to improve, and banks remain very cautious with regard to lending for new projects.”
Total new construction starts in March — which include residential and nonbuilding construction — came in at a seasonally adjusted annual rate of $404.9 billion, essentially the same as in February.
Construction Employment Slump Far From Over
Construction employment increased in 138 out of 337 metropolitan areas between March 2010 and March 2011 based on federal employment data, AGC reported on April 26, with decreases in 153 and little change in 46.
However, association officials warned that the industry’s five-year employment slump is far from over, and could worsen as public construction winds down.
“Even with more metro areas adding jobs than in any 12-month period since November 2007, the fact is most areas are far below previous construction employment peaks,” said Ken Simonson, the association’s chief economist.
“With federal stimulus, base realignment and Gulf Coast hurricane-protection projects slated to end soon, many areas are at serious risk of another downturn in construction employment,” he said.
While private nonresidential and multifamily construction appear to be stabilizing or picking up in most markets, those gains are likely to be offset by pending drops in public construction, according to AGC.