New Construction Starts Expected to Increase 5% in 2017

Dodge Data & Analytics has released its 2017 Dodge Construction Outlook predicting a 5 percent increase in new construction starts. In delivering the report Robert Murray, chief economist for Dodge Data & Analytics said that slower-than-expected growth earlier this year raised some concerns that the industry might be in the early stages of cyclical decline, but instead “it is entering a more mature phase of its expansion characterized by slower rates of growth than what took place during the 2012-2015 period, but still growth.” He said he expects moderate gains through 2017 and beyond.

“On balance, there are a number of positive factors which suggest the construction expansion has room to proceed,” he said. “The U.S. economy in 2017 is anticipated to see moderate job growth, market fundamentals for commercial real estate should remain generally healthy, and more funding support is coming from state and local bond measures. Although the global economy in 2017 will remain sluggish, energy prices appear to have stabilized, interest rate hikes will be gradual and few, and a new U.S. President will have been elected. For 2017, total construction starts are forecast to rise 5% to $713 billion. Gains of 8% are expected for both residential building and nonresidential building, while nonbuilding construction slides a further 3 percent.”

The pattern of construction starts by more specific sectors is the following:

  • Single-family housing will rise 12% in dollars, corresponding to a 9% increase in units to 795,000 (Dodge basis). Access to home mortgage loans is improving, and some of the caution exercised by potential homebuyers will ease with continued employment growth and low mortgage rates. Older members of the Millennial generation are now moving into the 30 to 35 year-old age bracket, which should begin to lift demand for single family housing.
  • Multifamily housing will be flat in dollars and down 2% in units to 435,000 (Dodge basis). This project type now appears to have peaked in 2015, lifted in particular by an exceptional amount of activity in the New York NY metropolitan area, which is now settling back. Continued growth for multifamily housing in other metropolitan areas, along with still generally healthy market fundamentals, will enable the retreat at the national level to stay gradual.
  • Commercial building will increase 6% on top of the 12% gain estimated for 2016. Office construction is showing improvement from very low levels, lifted by the start of several signature office towers and broad development efforts in downtown markets. Store construction should show some improvement from a very subdued 2016, and warehouses will register further growth. Hotel construction, while still healthy, will begin to retreat after a strong 2016.
  • Institutional building will advance 10%, resuming its expansion after pausing in 2015 and 2016. The educational facilities category is seeing an increasing amount of K-12 school construction, supported by the passage of recent school construction bond measures. More growth is expected for the amusement category (convention centers, sports arenas, casinos) and transportation terminals.
  • Manufacturing plant construction will increase 6%, beginning to recover after steep declines in 2015 and 2016 that reflected the pullback for large petrochemical plant starts.

Source: Dodge Data & Analytics

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