First-Half CRE Construction Starts Slip
Dodge Data & Analytics, New York, reported commercial and multifamily construction start volume totaled $101.4 billion during first-half 2019, down 6 percent from $107.4 billion in 2018’s first half.
Dodge reported the decline for commercial and multifamily construction starts in the first half was due entirely to a slower pace for multifamily housing starts. Multifamily starts dropped 13 percent year-over-year while commercial building held steady with its first-half 2018 amount.
“So far in 2019, multifamily housing has settled back from last year’s robust amount, although this year’s volume can still be regarded as healthy by recent standards,” said Dodge Data & Analytics Chief Economist Robert Murray. “Due to the strong 2018 economy, market fundamentals for multifamily housing such as occupancies and rents strengthened and have not yet begun to erode in a widespread manner.”
But Murray voiced concern that multifamily housing is overbuilt in some markets and said banks are taking a more cautious stance toward multifamily lending. “As for commercial building, office construction starts in 2019 have seen modest expansion compared to last year, helped by groundbreaking for large office projects and the support coming from the continued strength of data center projects.”
Murray said hotel construction has remained close to last year’s pace, but noted warehouse construction has begun to slip and retail store construction has seen further declines. “Going forward, a slowing economy would lead to more visible erosion in market fundamentals, which would contribute to a more subdued pace for commercial building starts,” he said.
Studying more recent data, new construction starts increased two percent during July, Murray said. “The strengthening volume of construction starts in recent months indicates that activity is moving closer to the levels reported in 2018, following a sluggish performance at the outset of 2019,” he said.
Murray called the commercial building segment “mixed” so far in 2019. “Office construction remains on track for a modest gain, but there’s also been generally depressed activity for store construction and some slippage for hotel and warehouse starts,” he said.
Different metros also saw very different CRE start performance, Dodge reported. Of the largest markets, New York held steady while Washington, D.C. saw increased starts. Boston, Los Angeles, Atlanta, and Chicago showed growth during the first half of 2019 versus a year ago while Dallas-Fort Worth, Miami and Houston all saw fewer starts.
