For all of 2017, total construction starts grew 3 percent to $745.9 billion, according to Dodge Data & Analytics, which followed the 6 percent increase reported for 2016. The full-year 2017 gain was dampened by a 35 percent downturn for the electric utility/gas plant category. If electric utilities and gas plants are excluded, total construction starts for 2017 would be 5 percent higher than the corresponding amount for 2016 (see Table 1).“On a quarterly basis, growth in 2017 was reported during the first and third quarters, while activity retreated during the second and fourth quarters, continuing the up-and-down pattern around an upward trend that was present during 2016,” said Robert A. Murray, chief economist for Dodge Data & Analytics.
“On the positive side for 2017, institutional building assumed a leading role in keeping the nonresidential building expansion going, reflecting elevated activity for transportation terminal starts and further improvement by educational facilities,” Murray said. “Manufacturing plant construction starts strengthened, ending a two-year decline, and commercial building was able to stay close to its heightened 2016 amount. Residential building in 2017 showed more growth for single-family housing, offsetting a downturn for multifamily housing. And, public works construction in 2017 was able to strengthen, helped by the start of several very large pipeline projects and a moderate gain for highway and bridge construction.”
According to Murray, the construction industry during the last two years has transitioned to a more mature stage of expansion, characterized by slower rates of growth for total construction compared with the 11 percent to 13 percent yearly gains during the 2012-2015 period.
“For 2018, the construction expansion is anticipated to continue at a modest pace,” Murray said. The tax reform package is expected to provide a near-term lift to overall economic growth, and the likely beneficiaries would be commercial building and multifamily housing. Funding support for institutional building will come from the state and local bond measures passed in recent years. Passage of a new infrastructure program at the federal level could be a plus for public works, although the impact at the construction site is likely to be felt more in 2019 than in 2018, as the program would feature incentives to boost funding from state, local, and private sources.”
For 2017 as a whole, nonresidential building advanced 7 percent to $270.7 billion. The institutional building categories as a group climbed 14 percent, a stronger gain than the 9 percent increase reported during 2016. Transportation terminal work had a banner year in 2017, as new construction starts soared 121 percent. Noteworthy transportation terminal projects that reached groundbreaking were led by two projects at LaGuardia Airport in New York — the $4 billion Delta Airlines Terminal and the $3.4 billion Central Terminal replacement project.
The next three largest transportation terminal projects were the $1.9 billion Delta relocation to Terminals 2 and 3 at Los Angeles International Airport, the $1.3 billion Farley Train Hall redevelopment in New York, and the $1.2 billion South Terminal C project (phase 1) at Orlando International Airport.
The educational facilities category in 2017 increased 6 percent, as college and university construction starts jumped 20 percent after experiencing a 3 percent decline in the previous year. Large college and university projects that reached groundbreaking in 2017 included a $421 million research laboratory at the University of California in Merced, Calif., and a $327 million school of engineering and applied sciences at Harvard University in Allston, Mass.
The K-12 portion of the educational facilities category rose 5 percent in 2017, a smaller gain than the 14 percent increase during the previous year. The top five states for K-12 school construction in 2017, with their percent change from the previous year, were the following:
- Texas, down 4 percent;
- New York, up 24 percent;
- California, up 13 percent;
- Washington, up 43 percent; and
- Ohio, up 9 percent.
Health care facilities in 2017 improved 1 percent, and included 43 projects valued each at $100 million or more, led by the $1.4 billion Penn Medicine Patient Pavilion in Philadelphia and a $550 million medical center in St. Louis. Additional gains in 2017 were reported for religious buildings, up 13 percent (after a very weak 2016), and public buildings, up 6 percent.
The amusement-related category fell 6 percent in 2017 after a 28 percent jump in 2016 that included the start of the $3.0 billion football stadium for the Los Angeles Rams and Los Angeles Chargers in Inglewood, Calif. Several large amusement-related projects did reach groundbreaking in 2017, led by the $1.2 billion expansion of the Javits Convention Center in New York; the $1.1 billion retractable-roof baseball stadium for the Texas Rangers in Arlington, Texas; and the $562 million arena portion for the Golden State Warriors that’s part of the $1.0 billion Chase Center complex in San Francisco.
The commercial categories as a group slipped 3 percent in 2017, after surging 22 percent in 2016. Store construction and commercial garages registered the largest declines, with each falling 10 percent. Hotel construction dropped 5 percent, following a 28 percent jump in 2016 that included the $465 million hotel portion of the $1.7 billion Wynn Casino in the Boston area. There were still several large hotel projects that reached groundbreaking in 2017, such as the $575 million hotel portion of the $900 million Seminole Hard Rock Hotel expansion in Hollywood, Fla., and the $342 million hotel portion of the $500 million Resorts World Hotel and Casino in Las Vegas.
Office construction receded 2 percent in 2017 after registering a 29 percent gain in 2016 that included the $2.0 billion 3 Hudson Boulevard office building and the $1.5 billion One Vanderbilt Tower, both in New York. Large office projects that reached groundbreaking in 2017 included the $1.7 billion 50 Hudson Yards office building in New York, the $780 million office portion of the $1.3 billion Oceanwide Center complex in San Francisco, and the $750 million Facebook data center in Sandston, Va.
The top five metropolitan areas in 2017 ranked by the dollar amount of new office construction starts, with their percent change from the previous year, were:
- New York, down 33 percent;
- San Francisco, up 132 percent;
- Washington, D.C., up 10 percent;
- Dallas-Ft. Worth, down 21 percent; and
- Atlanta, up 27 percent.
Warehouse construction was the one commercial project type to register a gain in dollar terms during 2017, increasing 10 percent, which reflected the start of numerous Amazon fulfillment centers. The manufacturing plant category advanced 21 percent in 2017, following declines of 30 percent in 2015 and 20 percent in 2016. Petrochemical plant starts increased substantially in 2017 after a two-year slide, and included such projects as a $6.0 billion ethane cracker facility in Pennsylvania and a $1.8 billion methanol plant in Louisiana.
The 2017 amount for residential building was $302.0 billion, a 2 percent gain that followed a 9 percent increase in 2016. Single-family housing maintained its moderate upward track, rising 8 percent, which matched its rate of growth in dollar terms for 2016.
By geography, single-family housing in 2017 showed the following pattern for the five major regions:
- South Atlantic, up 12 percent;
- South Central and West, each up 8 percent;
- Midwest, up 5 percent; and
- Northeast, down 2 percent.
Multifamily housing in 2017 headed in the opposite direction, falling 12 percent after seven straight years of expansion. New York, the nation’s leading multifamily market by dollar volume, registered a relatively modest 4 percent decline in 2017, after sliding a substantial 27 percent in 2016. However, the pullback for multifamily housing broadened on a geographic basis during 2017, as seven of the remaining nine metropolitan markets in the top 10 showed weaker activity, with only San Francisco and Atlanta reporting gains. Rounding out the top 10 multifamily markets by the 2017 dollar volume, with their percent change from 2016, were the following:
- Los Angeles, down 17 percent;
- Washington, D.C., down 23 percent;
- Chicago, down 24 percent;
- San Francisco, up 3 percent;
- Boston, down 29 percent;
- Atlanta, up 26 percent;
- Miami, down 50 percent;
- Seattle, down 10 percent; and
- Dallas-Ft. Worth, down 26 percent.
For the full year 2017, nonbuilding construction dropped 2 percent to $173.2 billion. The nonbuilding decline was mostly the result of the 35 percent plunge for the electric utility/gas plant category, which continued to retreat after its most recent peak in 2015. Although the dollar amount for conventional power plant starts increased 6 percent in 2017, other power generation projects including solar and wind fell 49 percent, and the amount of gas plant construction starts was negligible by recent standards.
The public works project types as a group grew 10 percent in 2017, with a large share of that increase coming from 35 percent growth for the miscellaneous public works category. If miscellaneous public works is excluded, the remaining public works categories together would be up only 1 percent in 2017. The miscellaneous public works category benefitted from an exceptionally strong amount of new pipeline projects, totaling $21.6 billion in 2017, and including such projects as the $4.2 billion Rover natural gas pipeline located mostly in Ohio and the $3.0 billion Atlantic Sunrise natural gas pipeline expansion located mostly in Pennsylvania. Rail mass transit construction starts, totaling $9.6 billion in 2017, also lifted the miscellaneous public works category.
Highway and bridge construction starts grew 7 percent in 2017, strengthening after a 9 percent decline in 2016. The top five states in 2017 ranked by the dollar amount of new highway and bridge construction starts, with their percent change from the previous year, were:
- Texas, down 20 percent;
- California, up 9 percent;
- Virginia, up 180 percent;
- Florida, up 23 percent; and
- Pennsylvania, up 32 percent.
The environmental public works categories registered decreased activity in 2017, with river/harbor development down 2 percent, sewer construction down 10 percent, and water supply construction down 17 percent.
The 3 percent increase for total construction starts at the national level in 2017 was the result of mixed behavior by geography. The Northeast climbed 17 percent, aided by strong gains for its institutional building sector and natural gas pipelines, while more moderate total construction growth was reported for the South Atlantic, up 6 percent; and the West, up 3 percent. Total construction declines in 2017 were reported for the South Central, down 3 percent; and the Midwest, down 8 percent.
ABI and Consensus Forecast
The Architecture Billings Index (ABI) concluded the year in positive terrain, with the December reading capping off three straight months of growth in design billings. The American Institute of Architects (AIA) reported the December ABI score was 52.9, down from a score of 55.0 in the previous month. This score still reflects an increase in design services provided by U.S. architecture firms (any score above 50 indicates an increase in billings). The new projects inquiry index was 61.9, up from a reading of 61.1 the previous month, while the new design contracts index decreased slightly from 53.2 to 52.7.
“Overall, 2017 turned out to be a strong year for architecture firms. All but two months saw ABI scores in positive territory,” said AIA Chief Economist Kermit Baker, Ph.D., Hon. AIA. “Additionally, the overall strength of the fourth quarter lays a good foundation for healthy growth in construction activity in 2018.”
Key December ABI highlights:
- Regional averages: South (56.3); West (53.0); Midwest (52.9); Northeast (49.4)
- Sector index breakdown: Multifamily residential (55.4); Commercial/Industrial (54.8); Institutional (51.2); Mixed practice (50.4)
The regional and sector categories are calculated as a three-month moving average, whereas the national index, design contracts, and inquiries are monthly numbers.
Despite labor shortages and rising material costs that continue to impact the construction sector, construction spending for nonresidential buildings is projected to increase 4 percent this year and continue at that pace of growth through 2019. The AIA semi-annual Consensus Construction Forecast indicates the commercial construction sectors will generate much of the expected gains this year, and by 2019 the industrial and institutional sectors will dominate the projected construction growth:
Market Segment 2018 Growth 2019 Growth
Overall nonresidential building 4.0% 3.9%
Commercial/Industrial 4.4% 2.9%
Office space 4.6% 3.0%
Retail 4.4% 3.5%
Hotels 4.1% 0.8%
Industrial facilities 3.3% 5.2%
Institutional 3.8% 4.3%
Education 4.0% 4.9%
Health care facilities 4.0% 4.0%
Public safety 3.6% 3.9%
Amusement/Recreation 3.3% 2.4%
Religious -1.1% 0.9%
“Rebuilding after the record-breaking losses from natural disasters last year, the recently enacted tax reform bill, and the prospects of an infrastructure package are expected to provide opportunities for even more robust levels of activity within the industry,” Baker said. “The ABI and other major leading indicators for the industry also point to an upturn in construction activity over the coming year.”
Learn more about the AIA’s Consensus Construction Forecast at https://www.aia.org/articles/173086-what-slowdown-pace-of-construction-activity.
Source: American Institute of Architects
Information provided by Dodge Data & Analytics (www.construction.com).