New-construction Starts in December Grew 5 Percent

New construction starts in December grew 5 percent to a seasonally adjusted annual rate of $554.5 billion, according to McGraw Hill Construction, a division of McGraw Hill Financial. Although nonresidential building and housing settled back during the final month of 2013, the nonbuilding construction sector (public works and electric utilities) finished the year on a strong note. For 2013 as a whole, total construction starts advanced 6 percent to $516.8 billion. This follows the 10 percent gain reported for 2012 (which drew support from a record amount of new electric utility starts that year) and modest 2 percent gains in both 2010 and 2011. If the volatile electric utility category is excluded, total construction starts in 2013 would be up 14 percent, following a 9 percent gain in 2012 and essentially flat activity during 2010 and 2011.

The December statistics produced a reading of 117 for the Dodge Index (2000=100), compared to 111 in November. This marked the third highest month for the Dodge Index during 2013, after September’s 118 and October’s 125. During the first eight months of the year, the Dodge Index had hovered within the fairly narrow range of 100 to 108, but then showed a stronger pace of activity during the final four months, reflecting in part the impact of several very large projects. In December, large projects that were entered as construction starts included the $1.5 billion Goethals Bridge replacement project in New York and New Jersey, two large natural gas-fired power plants, and two large manufacturing plants. For all of 2013, the Dodge Index averaged 109, up from 103 in 2012.

Nonresidential building in December slipped 7 percent to $168.6 billion (annual rate), pulling back for the second month in a row after its elevated pace in October, although its fourth quarter average was still 17 percent above what was reported in the first quarter. Several commercial categories in December paused from the improved activity registered earlier in the fall. New office construction dropped 44 percent from November which had been lifted by the start of such projects as the $336 million Transbay office tower in San Francisco; in contrast, the largest office projects entered as December starts were an $80 million office complex in Cary, N.C., and a $73 million data center in West Des Moines, Iowa. Similar December declines were registered by hotels, down 42 percent; and warehouses, down 46 percent; although the latest month did include the start of an $88 million Amazon distribution center in Windsor, Conn. Store construction, which was the one commercial category that did not post a November gain, managed to increase 6 percent in December. The December pause for nonresidential building was cushioned by a sharp 110 percent jump for manufacturing buildings, which reflected the start of two massive chemical plants in Louisiana, each valued at $500 million.

The institutional building categories in December were mixed. Educational facilities grew 5 percent, helped by the start of a $213 medical research building in Boston and a $151 million college science building in Chicago. Healthcare facilities in December jumped 30 percent from the prior month’s subdued amount, and featured groundbreaking for an $80 million hospital in Virginia and a $70 million cancer center in Wisconsin. The smaller institutional categories generally weakened in December, with public buildings (courthouses and detention facilities) down 32 percent; churches, down 44 percent; and amusement-related work, down 46 percent (compared to the previous month which included the $763 million Vikings Multipurpose Stadium in Minneapolis). The transportation terminal category retreated a slight 1 percent in December, and included the start of a $230 million terminal renovation project at Los Angeles International Airport.

For 2013 as a whole, nonresidential building increased 7 percent to $168.6 billion, shifting to an upward direction after the 5 percent decline reported for 2012. The commercial categories overall advanced 16 percent, faster than the 13 percent gain witnessed in 2012. The strongest gain by commercial category was registered by hotels, up 28 percent; followed by warehouses, up 27 percent; office buildings, up 17 percent; and stores, up 1 percent. The small 2013 increase for stores was limited by the comparison to 2012 that included the $400 million renovation to Macy’s flagship department store in New York. The manufacturing building category in 2013 surged 36 percent, helped by the two large chemical plants in Louisiana reported as December starts as well as by such projects as a $1.7 billion fertilizer plant in Iowa, a $1.7 billion natural gas processing plant in West Virginia, and a $1.5 billion industrial gas products plant in Louisiana. The institutional building group during 2013 decreased 3 percent, less severe than declines of 9 percent in 2012 and 11 percent in 2011. The two largest institutional categories performed as follows – educational buildings, down 1 percent; and healthcare facilities, down 6 percent. The smaller institutional categories showed this pattern for 2013 – amusement-related work, up 25 percent; transportation terminals, down 2 percent; churches down 11 percent; and public buildings, down 27 percent.

Residential building in December dropped 6 percent to $205.3 billion (annual rate), with both sides of the housing market easing back. Single family housing slipped 3 percent, as recent months have shown more of an up-and-down pattern after the consistently steady gains witnessed earlier in the year. When viewed on a quarterly basis, single family housing still registered consistent growth during 2013, with the fourth quarter up 8 percent compared to the first quarter. Multifamily housing in December retreated 13 percent after November’s increase of the same magnitude. December’s largest multifamily projects were smaller in scale than what had been reported in the previous month, but still included such substantial entries as a $159 million apartment building in Sunny Isles Beach, Fla., a $128 million condominium tower in Honolulu, and a $127 million apartment building in Brooklyn.

The 2013 amount for residential building was $205.5 billion, up 24 percent, and close to the 31 percent gain reported for 2012. Single family housing in dollar terms climbed 26 percent, similar to the prior year’s 29 percent hike. The regional pattern for single family housing in 2013 showed increases for all five major regions, as follows – the South Atlantic, up 33 percent; the Midwest, up 27 percent; the West and Northeast, each up 26 percent; and the South Central, up 18 percent. Multifamily housing in 2013 advanced 16 percent, showing additional growth on top of the increases in 2010 (up 23 percent), 2011 (up 33 percent), and 2012 (up 37 percent). By major region, multifamily housing revealed this performance in 2013 – the Midwest, up 26 percent; the Northeast, up 24 percent; the South Atlantic, up 21 percent; the West, up 13 percent; and the South Central, down 6 percent. The top five metropolitan areas in terms of the 2013 dollar amount of multifamily starts, with the percent change from 2012, were – New York, up 23 percent; Boston, up 74 percent; Washington, D.C., unchanged from the prior year; Miami, up 12 percent; and Los Angeles, down 24 percent. Metropolitan areas ranked 6 through 10 for multifamily starts were – Dallas-Ft. Worth, down 6 percent; Chicago, up 52 percent; Seattle, unchanged from the prior year, San Francisco, up 12 percent; and Denver, up 17 percent.

The 6 percent gain for total construction starts at the national level in 2013 was the result of gains in four of the five major regions. Showing the strongest growth was the Northeast, up 17 percent; followed by the Midwest, up 9 percent; the West, up 8 percent; and the South Central, up 3 percent. The South Atlantic was the one major region to experience a decline in 2013, dropping 3 percent. The South Atlantic’s shortfall reflected the comparison to 2012 that included the start of two massive nuclear facilities, located in Georgia and South Carolina. If electric utilities are excluded from the construction start statistics in the South Atlantic, then total construction for that region in 2013 would be up 19 percent.