Construction Spending = Better Times for Office, Hotel Markets

Among non-residential property types, office and hospitality properties are the clear winners when it comes to construction spending in January compared with last year.

Dees Stribling, Contributing Editor

Construction spending took a dip in January, and since the Census Bureau’s numbers are adjusted for the miserable season of winter, the snow and ice wasn’t the reason. Both private and public construction spending decreased in January, and all together spending totaled $971.4 billion during January, or 1.1 percent below December. Private construction took a small dip of 0.5 percent, while public spending was off a more substantial 2.6 percent. Then again, it’s always possible — even likely — that  monthly movements are just so much noise.

The annual increases and decreases, on the other hand, probably point to wider trends in both residential and commercial real estate. January 2015 represented a 1.8 percent increase in spending on construction projects nationwide when compared with the same month a year earlier. In residential construction, new single-family construction was up 9.7 percent year over year, which is fairly healthy, even though housing construction hasn’t really returned to the pre-recessionary, pre-bubble normal levels yet — construction spending on houses is only better now than it was immediately after the recession.

Multi-family construction spending was up 29.8 percent since last January, a much wider swing. There are two reasons for that: multi-family is naturally volatile, but there’s also more multi-family being developed than ever due to demand for apartments and (in a few markets such as New York and Miami) condos.

Among non-residential property types, office and hospitality properties are the clear winners when it comes to construction spending in January compared with last year. Office construction spending was up 14.9 percent, while lodged experienced a 17.8 percent increase. Both are very healthy metrics indeed, since (unlike apartment construction), those property types aren’t as volatile from month to month or even year to year. The office market is seeing a lot of build-to-suit construction as companies see it as a better way to obtain new space, but in the case of hotels the construction increase is spurred by demand, since the industry has fully recovered from its slump.

Another sector that’s seeing a somewhat surprising surge in construction spending is manufacturing, which enjoyed a 4.2 percent increase for the month and a 22.5 percent increase for the year. Though not as large as it was in previous decades, the U.S. manufacturing sector isn’t dead, and it needs new space, often the high-tech sort. The relatively minor amusement and recreation sector was also a winner for the year, up by 22.4 percent (which might mean that people are looking for recreation in greater numbers once again). Despite federal cuts, state and local governments are once again driving public construction, which dropped for the month in January but gained for the year, up 5.1 percent, with expansion in such categories as conservation; sewage and waste disposal; and transportation.