While Activity Remains Spotty In Some Sectors and Regions, Nonresidential Development Pipelines Should Continue to Fill Up At Least Through Yearend
New development and construction are shifting into full recovery, with several recent leading indicators pointing to acceleration in commercial and starts and deliveries of new supply through at least the balance of 2014.
The Architecture Billings Index (ABI), produced monthly by the American Institute of Architects (AIA), jumped sharply by three points in May to 52.6 from the previous month. An AIA sub index tracking inquiries into new projects rose by more than four points in May to 63.2. The ABI leads hard construction spending by nine to 12 months.
"Overall, it appears that activity has recovered from the winter slump, and design professions should see more positive than negative numbers in the coming months," AIA Chief Economist Kermit Baker noted.
That said, some U.S. regions and industry sectors are reporting stronger growth, while others are seeing continued weakness, and "volatility continues to be the watchword in the design and construction markets," Baker said.
New Project Index Moves Upward
Meanwhile, the Dodge Momentum Index, a monthly measure tracking first reports of nonresidential building projects in the planning pipeline, appears to have resumed its upward track after weather-induced declines in February and March. The index, which leads construction spending for nonresidential buildings by a full year, rose 2% in May to 125.2 following a strong rebound in April, according to McGraw Hill Construction.
The index is now 17.6% higher than a year earlier and "the growing volume of commercial and institutional projects at the planning stage and strengthening market fundamentals such as occupancy rates and rents suggest that nonresidential construction starts should be headed higher over the remainder of the year," according to McGraw Hill.
New commercial projects entering the planning stages rose 4.5% in May, headed by the $500 million Rainier Square mixed-use tower in Seattle; a $200 million warehouse at Goodman Commerce Center in Inland Empire, CA; and a $100 million office building for Overstock.com in Midvale, south of Salt Lake City, UT.
Large institutional projects added during May included a $200 million expansion of Mount Sinai Medical Center in Queens, NY; and the new $145 million St. Clair Commons Health campus in St. Clairsville OH.
New construction starts showed particularly strong growth of 31% for commercial buildings in May, led by gains in office and hotel projects, according to McGraw Hill. Office construction in May surged 94%, led by the start of the massive new $2.5 billion headquarters for Apple Inc. in Cupertino CA.
Apartment Construction Continues Strong Pace
The three-month moving average for multifamily residential construction starts rose 3.5% in May to 366,000 units -- about where a fully recovered construction market should be, according to Reed Construction. Despite a 7.6% decline in May, year-to-date multifamily starts are up 14.8% over 2013.
The job market for construction workers also continued to improve in about two-thirds of the nation's metro areas in May, according to an analysis of federal employment data by the Associated General Contractors of America (AGC).
The greater Dallas/Fort Worth metro area added the largest number of jobs in the past year at 11,100 jobs, a 10% increase over last year; followed by the Los Angeles metro are at 9,300 jobs, an 8% gain. The Houston metro gained 7,300 jobs, or 4%; followed by Orange County, CA (7,200 jobs, 9%) and Atlanta (7,100 jobs, 8%).