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MHC Says Starts Rise In August; Housing Is Mixed; Retail Remains Weak; Industrial Gains

September 26, 2011
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“New construction starts in August advanced 8 percent,” McGraw-Hill Construction reported Sept. 21, based on data it compiled. “The gain followed a 10 percent decline in July, and continued the fluctuating pattern that’s been present in recent months. The pickup for total construction in August was the result of greater activity for each of construction’s three main sectors - nonresidential building [7 percent], residential building [4 percent] and nonbuilding construction [13 percent]. For the first eight months of 2011, total construction on an unadjusted basis was…down 6 percent from the same period a year ago.”

Nonresidential building declined 8 percent year-to-date; residential, -5 percent; and nonbuilding, -4 percent. “‘Over the [latest] three months an up-and-down pattern has emerged,’ stated Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction. ‘This suggests that construction starts are beginning to stabilize after the earlier loss of momentum. At the same time, total construction remains on track to register a moderate decline for 2011 as a whole, after leveling off in 2010.

“‘While August showed some improvement for institutional building and public works, each of these sectors will be subject to funding cutbacks at the federal and state levels of government. Single-family housing continues to see homebuyer demand restrained by the sluggish economic environment and more restrictive lending standards. And what appears to be the early signs of recovery for commercial building may well end up being deferred by rising investor concern about employment growth and the near term prospects for the U.S. economy.’”

Data on August housing starts and building permits that the U.S. Census Bureau released Sept. 20 show a mixed outlook for residential construction. Single-family starts dipped 1.4 percent from July’s level and 2.3 percent from August 2010; permits, a reliable indicator of near-term single family construction, rose 2.5 percent and 2.0 percent, respectively. Multifamily (two or more units) starts dropped 13 percent and 14 percent but permits climbed 4.5 percent and 22 percent.

Retail, industrial construction: The outlook for retail construction remains bleak. Major national retailers at Associated General Contractors’ Public-Private Industry Advisory Council meeting Sept. 23 reported they expect to spend more on distribution facilities in 2012 than on new or remodeled stores as they consolidate and speed deliveries to stores and respond to growing online orders. Other chains continue to give up or market existing space.

“Sears Holdings Corp., whose sprawling stores are laden with extra space, is aggressively marketing itself as a place for other retailers to set up shop,” the Wall Street Journal reported Sept. 23. “Through its real-estate arm, Sears…has listed on its website nearly 4,000 of its namesake and Kmart stores that have space for other merchants or retail operations to lease.” Retail sales at most categories of stores other than gas stations and auto dealers rose roughly 5-6 percent in the first eight months of 2012 compared with the same period in 2010, while sales of nonstore retailers (online and mail-order) jumped 13 percent, the Census Bureau reported Sept. 19.

Online sales are one factor stimulating warehouse and industrial construction. “Signs of the market’s growth are apparent in the New York area,” the New York Times reported Sept. 14. In “Edison, New Jersey, the J.G. Petrucci Co. is building a 570,000-square-foot warehouse even though the developer has not lined up a single tenant….In Robbinsville, N.J., [Matrix Development Group is] constructing a 150,000-square-foot industrial building for the beverage distributor Ritchie & Page[. But] smaller properties are languishing…‘because banks aren’t lending, and people have no equity in their homes to take out second mortgages to finance new businesses,’” said Jack O’Connor, a principal and director of the national industrial practice group at Newmark Knight Frank in Long Island.

“Ports also play a role in industrial real estate, and in New Jersey investors are making big bets that port business will increase,” the Times article reported. “This is in part because of a $5.25 billion project to widen the Panama Canal by 2014. The widening will allow large cargo ships that currently anchor in California and use trucks or the railroad to move goods to the East Coast to sail directly to New Jersey….To prepare for an influx of larger ships, the Port Authority of New York and New Jersey plans to raise the Bayonne Bridge by 2016. [The Port Newark Container Terminal] agreed to invest $500 million in capital improvements.”

Other ports on the East and Gulf coasts are also investing in port, rail, road and warehouse construction, while West Coast ports and railroads are trying to improve transfer and delivery times. “Union Pacific plans to invest approximately $3.3 billion in capital during 2011,” the firm reported in a Sept. 22 press release.

“Bridgestone Corp. said [Sept. 21] it plans to spend $1.1 billion to expand an existing auto-tire plant in [Graniteville,] South Carolina and build a new factory nearby to produce tires for heavy, off-road vehicles,” the Journal reported Sept. 22. “The announcement highlights an ongoing move by auto-related companies choosing to manufacture in the U.S. with an eye to exporting elsewhere after years of moving operations out of the country in search of cheaper labor in other parts of the world.”

“Some say…the Bakken shale formation, a 15,000-square-mile oil field straddling North Dakota and Montana and producing 300,000 barrels per day of crude oil…expected to increase to 1.2 million barrels per day by 2015” is “the biggest construction project in the U.S. - a job requiring $8 billion in rail and fuel terminals, oil pipelines, natural-gas plants, oil wells, highway upgrades, water distribution systems and more,” Engineering News-Record reported Sept. 19. “The number of construction projects, speed of growth and cold-climate challenges are mind-boggling.”

Click here to register for the complimentary webinar “Flat, Down or Up? Where is Construction Heading?” Oct. 13 with Ken Simonson, American Institute of Architects Chief Economist Kermit Baker and Reed Construction Data’s Chief Economist Bernard Markstein.

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