Commercial Construction Starts Mostly Down, Though Bottom May Be in Sight

Reed Construction Data today announced their latest figures on the value of recent U.S. construction starts, and while those numbers are pretty unsightly, at least they shouldn’t be surprising. From January through May, according to Reed, starts were down 5.9 percent from the same period in 2007, continuing a downward trend that started in the middle of last year. But such overall figures don’t necessarily say much, so Reed provided some commercial construction stats broken down especially for CPN. The figures below cover various commercial sectors from January through May, with comparisons to the same period last year. * Office (private-sector only) at $9.15 billion, down 14.0 percent. * Retail at $11.0 billion, down 13.9 percent. * Hospitality at $5.2 billion, down 14.8 percent. * Warehouse at $981 million, down 41.1 percent. * Manufacturing space at $2.18 billion, down 45.4 percent. Not all product types are in the tank. In fact, several niches have shown remarkable growth versus last year. * Military construction (not including housing) at $2.1 billion, up 116.4 percent. * Government office at $2.32 billion, up 100.6 percent. * Parking garages at $1.39 billion, up 63.2 percent. * Police/courthouse/prison at $2.68 billion, up 29.7 percent. * Library/museum at $1.43 billion, up 27.4 percent. Jim Haughey, Reed Construction Data’s chief economist, told CPN that military and government-related construction being out of synch with the private-sector markets isn’t surprising. “Government takes a long time to get the word,” he said, and it builds with money already in hand, not prospective money like private developers. He doesn’t expect that submarket to stay up for long. The increase in the value of parking garage starts, Haughey said, is probably just a blip, based in part on high construction costs. “There’s no reason they should be up when retailing is not.” Haughey is relatively optimistic about the depth of the current down market, describing it as “not anything like 2000… This is not the start of a three-year down cycle.” Though he doesn’t see the construction/development market as being quite at bottom yet, he expects to see an upturn by the end of the year, except perhaps for the office market. Availability and cost of some building materials will potentially be a drag on the recovery, however. “Steel has been a problem, and it will get worse,” Haughey said. The other good news, such as it is, is that overall construction starts (including single-family residential) in the last three months, March through May, seem to be even compared to the same period last year. In addition, construction starts in May were up 9 percent compared to May 2007. This surge, Reed noted in a prepared statement, “is consistent with an earlier report from the U.S. Labor Department that contractors laid off 34,000 workers in May, the smallest number of job cuts in many months.”