Commercial, multifamily construction starts retreated in 2017

By |  February 14, 2018

Many of the leading U.S. metropolitan areas for commercial and multifamily construction starts showed reduced activity in 2017 compared to levels reported during 2016, according to Dodge Data & Analytics.

Of the top 10 markets ranked by the dollar amount of construction starts, seven registered declines, one was essentially unchanged and just two showed greater activity in 2017.

For the metropolitan areas ranked 11 through 20, the 2017 performance was more evenly balanced, with four reporting declines, one essentially unchanged and five reporting gains. At the national level, the volume of commercial and multifamily construction starts was $194.7 billion, down 7 percent from 2016, although still 8 percent above the amount reported for 2015.

The New York metropolitan area, at $25.2 billion in 2017, continued to be the leading market in the U.S. for commercial and multifamily construction starts, although it dropped 16 percent from its 2016 amount. New York’s share of the U.S. total was 13 percent in 2017, down from 14 percent in 2016 and 19 percent in 2015. After reaching its most recent peak back in 2015 at an exceptional $34.9 billion, New York has seen its commercial and multifamily dollar amount slide by 28 percent.

The other six metropolitan areas in the 2017 top 10 with declines from their 2016 amounts were:

  • Los Angeles, $8.1 billion, down 20 percent
  • Dallas-Fort Worth, $7.5 billion, down 17 percent
  • Washington, D.C., $7.3 billion, down 16 percent
  • Miami, $6.6 billion, down 20 percent
  • Chicago, $6.5 billion, down 26 percent
  • Boston, $5.4 billion, down 26 percent

Each of these six metropolitan areas had registered double-digit gains of at least 25 percent in 2016. While each retreated in 2017, five were able to stay above their respective 2015 amounts.

Holding steady in 2017 was Seattle ($6.0 billion), while 2017 gains were reported for San Francisco ($7.3 billion), up 29 percent; and Atlanta ($6.5 billion), up 24 percent. The San Francisco metropolitan area drew support from the $1.3 billion Oceanwide Center Tower, while the Atlanta metropolitan area included such projects as the $440 million State Farm Park Center office building complex and the $240 million Coda office building.

For the metropolitan areas ranked 11 through 20, decreased commercial and multifamily construction starts for 2017 were reported for Denver ($3.2 billion), down 25 percent; Phoenix ($2.6 billion), down 15 percent; Nashville, Tennessee ($2.5 billion), down 8 percent; and San Jose, California ($2.5 billion), down 1 percent.

Houston ($3.9 billion) held steady with its 2016 amount even with the dislocations caused by Hurricane Harvey.

Double-digit growth was reported in 2017 for Philadelphia ($4.1 billion), up 31 percent; and Orlando, Florida ($2.9 billion), up 24 percent. More modest increases were reported for Austin, Texas ($3.2 billion), up 2 percent; Baltimore ($2.7 billion), up 4 percent; and San Diego ($2.6 billion), up 8 percent.

According to Dodge Data & Analytics, the commercial and multifamily total is comprised of office buildings, stores, hotels, warehouses, commercial garages and multifamily housing. The 7 percent drop for commercial and multifamily construction starts at the U.S. level in 2017 reflected mostly a multifamily pullback.

Multifamily construction starts at the U.S. level in 2017 dropped 12 percent to $84.9 billion, which followed a 10 percent increase in 2016 ($96.1 billion). Commercial building construction starts in 2017 slipped 3 percent to $109.8 billion, staying close to the 2016 level ($113.1 billion) achieved with a 22 percent hike that year.

“Of the commercial and multifamily project types, multifamily housing is the one that appears to have already reached its peak and is now heading downward, as shown by the 12 percent decline in dollar terms during 2017,” says Robert Murray, chief economist for Dodge Data & Analytics. “The expansion for multifamily housing began back in 2010, and in 2015 it benefited from a surge of activity in the New York metropolitan area and then in 2016 it showed broader growth geographically due to strong gains by other major metropolitan areas.”

That pattern shifted in 2017, Murray says, as markets like Los Angeles, Dallas-Fort Worth and Washington D.C., retreated from the levels posted during 2016.

“Multifamily vacancy rates, while still low historically, have been edging up slightly on a year-over-year basis for almost two years,” he says. “In addition, the banking sector has taken a more cautious stance towards lending for multifamily projects.”

The outlook for commercial building is mixed, as both office buildings and warehouses seem to still be in the process of reaching a peak, Murray adds.

“Although downtown and suburban office vacancy rates edged up slightly in the fourth quarter of 2017, they remain low by recent standards, and warehouse vacancy rates have not yet begun to rise in a sustained manner,” he says. “At the same time, the lodging sector is seeing slower growth for revenue per available room compared to a few years ago, and hotel construction starts are easing back, particularly from 2016, which saw several very large hotel and casino projects reach the construction start stage.”

Kevin Yanik

About the Author:

Kevin Yanik is the editor-in-chief of Pit & Quarry magazine. Yanik can be reached at 216-706-3724 or kyanik@northcoastmedia.net.

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