Following a 36% jump in October, the annual rate of nonresidential construction starts fell 20% to $142.4 billion in November, according to McGraw-Hill Construction.

Excluding the construction of a large coal-to-gasoline conversion facility in West Virginia, which inflated the October numbers, November starts would have remained fairly steady.

The value of all construction starts dropped 11% in November to a seasonally adjusted rate of $417.6 billion, despite 4% growth in residential building that was fueled by multifamily projects.

“The nonresidential construction sector continued its bounce along the bottom in November, and developing any momentum going forward will be difficult given the poor fundamentals on both the demand and supply side for most types of commercial properties,” said Brian Lego, a senior economist at NAHB.

Breakdown by Project Type

Despite a 72% decline in manufacturing plant starts in November, again because of the project in West Virginia, this is one of the nonresidential categories that has fared better over the past year.

“Manufacturing activity output has increased on a year-over-year basis in each of the past 23 months, and capacity utilization rates recently hit their highest levels in more than three years,” Lego said.

Although the sector has clearly been one of the strongest performers to date for the U.S. economy, factory capacity for most types of manufacturing industries are operating at rates well below their long-term averages,” he added.

November declines of around 30% were reported for offices (26%), churches (27%), transportation terminals (31%), recreation projects (33%) and public buildings (38%).

Warehouses saw a 16% decrease, and stores declined 9%.

Education building construction was down just 1%, and health care construction increased 41% in November.

“The office sector continues to see vacancy rates close to cyclical highs, and the pace of job growth in heavy office-using industries remains sluggish at best, which provides little incentive to build new space,” Lego said.

“Retail space and lodging — although seeing some improvement on the demand side of the ledger thanks to recent gains in consumer spending and confidence — still continue to see poor fundamentals on the supply side vis-à-vis high vacancy rates and low occupancy rates,” he added.

The View From the Field

Word from the field seems to be a bit more positive, with commercial builders seeing the promise of growth.

Ken Ringe, vice chair of the NAHB Commercial Builders Council and president of Bayview Construction in Stuart, Fla., said his company is seeing “an uptick in site work” and is bidding more projects lately.

“It will not be long before we figure out that construction costs will never be this low again,” Ringe said.

“Upward inflationary pressures on materials are starting to make the decision-makers take notice and stop stalling their expansion plans,” he added.

Yearly Comparisons

Overall for the first 11 months of 2011, nonresidential building saw a 4% decline from one year earlier.

Categories that increased over the year include:

• Health care facilities (4%)
• Warehouses (10%)
• Hotels (43%)
• Manufacturing plants (51%)

Categories that declined were:

• Stores (1%)
• Offices (2%)
• Educational buildings (12%)
• Churches (15%)
• Recreation-related projects (20%)
• Public buildings (21%)
• Transportation terminals (26%)

Construction Spending Data

The Associated General Contractors’ analysis of U.S. Census Bureau data shows a slightly more positive picture.

Looking at construction spending totals for November 2011, AGA reported total spending of $807 billion, “the highest level since June 2010.”

Construction spending rose from the November 2010 numbers in all areas except public spending, which declined 5.3% from a year earlier.

AGC projects public spending will continue to decline in 2012 due to planned federal spending cuts.

Construction Employment

Recent employment data have also been positive.

According to the ADP National Employment Report, construction employment in the private sector increased by an estimated 26,000 jobs in December, following an increase of 17,000 in November.

The U.S. Department of Labor showed a 17,000 increase in construction jobs for December, which is slightly lower but points to the growth trend reported by ADP.

Overall, the Labor Department reported that 200,000 jobs were added in December and that unemployment was at the lowest level (8.5%) since February 2009.

For information on commercial building resources available from NAHB, email Lisa Leone, or call her at 800-368-5242 x8455.