First-Half 2018 Construction Starts Show Mixed Performance Across Top Metropolitan Areas

September 2018

During the first half of 2018, five of the top 10 metropolitan markets for commercial and multifamily construction starts ranked by dollar volume showed increased activity compared to a year ago, according to Dodge Data & Analytics. Of the top 20 markets, 11 were able to register gains. At the national level, the volume of commercial and multifamily construction starts during the first half of 2018 was $101.4 billion, down 1 percent from last year’s first half, although still 2 percent above what was reported during the first half of 2016.
    
The New York, N.Y., metropolitan area, at $16.1 billion during the first half of 2018, held onto its number one ranking and comprised 16 percent of the U.S. commercial and multifamily total, helped by a 44 percent jump compared to a year ago. During the previous two years, the New York, N.Y., share of the U.S. total had slipped to 14 percent in 2016 and 13 percent in 2017, after seeing its share reach a peak at 19 percent back in 2015. Other markets in the top ten showing growth during the first half of 2018 were Washington DC ($5.0 billion), up 23 percent; Miami ($4.9 billion), up 34 percent; Boston ($3.7 billion), up 56 percent; and Seattle ($3.2 billion), up 7 percent. Of these markets, the top four (New York, Washington, D.C., Miami and Boston) showed renewed growth after the decreased activity reported for the full year 2017, while Seattle was able to maintain the upward track present last year. Metropolitan areas showing decreased activity for commercial and multifamily construction starts during the first half of 2018 were Dallas–Fort Worth ($3.4 billion), down 23 percent; Los Angeles ($2.9 billion), down 38 percent; San Francisco ($2.8 billion), down 38 percent; Chicago ($2.7 billion), down 37 percent; and Atlanta ($2.0 billion), down 43 percent.
    
For those markets ranked 11 through 20, the six that registered first half 2018 gains were Austin, Texas ($1.8 billion), up 15 percent; Kansas City, Mo. ($1.7 billion), up 52 percent; Orlando Fla. ($1.6 billion), up 4 percent; Phoenix ($1.6 billion), up 19 percent; Minneapolis–St. Paul ($1.3 billion), up 34 percent; and Portland, Ore. ($1.1 billion), up 15 percent. The four posting declines were Houston ($1.9 billion), down 13 percent; Philadelphia ($1.7 billion), down 13 percent; Denver ($1.6 billion), down 25 percent; and San Jose, Calif. ($1.1 billion), down 37 percent.
    
The commercial and multifamily total is comprised of office buildings, stores, hotels, warehouses, commercial garages, and multifamily housing. At the U.S. level, the 1 percent drop for the commercial and multifamily total during the first half of 2018 reflected an 8 percent retreat for commercial building that was essentially balanced by an 8 percent increase for multifamily housing.
    
“Multifamily housing has proven to be surprisingly resilient so far during 2018, following its 8 percent decline in dollar terms at the U.S. level that was reported for the full year 2017,” stated Robert A. Murray, chief economist for Dodge Data & Analytics. “With apartment vacancy rates beginning to edge upward on a year-over-year basis, banks had been taking a more cautious stance towards lending for multifamily projects. Yet, after some loss of momentum during 2017, several factors appear to be providing near-term support for multifamily housing. The U.S. economy is currently moving at a healthy clip, with steady job growth bringing new workers into the labor force. The demand for multifamily housing by millennials remains strong, given their desire to live in downtown areas while the increasing price of a single family home and diminished tax benefits may be dissuading some from making the transition to single family home ownership. As shown by this year’s surveys of bank lending officers conducted by the Federal Reserve, the extent of bank tightening for multifamily construction loans is not as widespread as a year ago.”
    
“On a broader level for commercial building, lending standards for nonresidential building loans have eased slightly over the past two quarters,” Murray continued. “And, the rollback of some of the Dodd-Frank restraints on the banking sector may encourage mid-size banks to increase lending for commercial real estate. While the expansion for commercial building and multifamily construction starts has clearly decelerated, the near-term shift appears to be one towards a plateau as opposed to a decline. This is consistent with the recent pattern for commercial and multifamily construction starts by major metropolitan areas, which reveals a fairly equal balance between those markets still showing gains and those markets showing decreased activity.”
    
The 44 percent increase registered by the New York metropolitan area during the first half of 2018 was the result of an 83 percent hike for commercial building combined with 22 percent improvement for multifamily housing. Previously, construction starts had retreated 15 percent in 2016 and 13 percent in 2017, following a 62 percent surge back in 2015. New office construction starts soared 114 percent in the first half of 2018, although as a point of perspective it was still 25 percent below the robust volume reported during the first half of 2015. Hotel construction also had a strong first half of 2018. As for the other commercial project types, garages were up 37 percent, but stores slipped 1 percent and warehouses fell 27 percent. The 22 percent increase for multifamily housing during the first half of 2018 reflected the start of 15 projects valued each at $100 million or more.
    
The Washington, D.C., metropolitan area grew 23 percent during the first half of 2018, with commercial building up 31 percent and multifamily housing up 16 percent. During 2017, commercial and multifamily construction starts had retreated 15 percent for the full year after a 39 percent gain in 2016. New office construction starts were up 55 percent in the first half of 2018, lifted by the start of five data centers in Ashburn, Va., with a combined construction cost of $840 million. The performance by the other commercial project types was mixed, with gains for hotels (up 222 percent) and warehouses (up 1 percent), while declines were reported for commercial garages (down 24 percent) and stores (down 28 percent). There were three multifamily projects valued each at $100 million or more that reached groundbreaking during the first half of 2018.
    
The Miami metropolitan area climbed 34 percent during the first half of 2018, with the boost coming from a 95 percent jump for multifamily housing while commercial building settled back 6 percent. During 2017, the Miami market had fallen 20 percent for the full year after its 25 percent increase in 2016. The $2.8 billion of multifamily projects that reached groundbreaking during the first half of 2018 topped the $2.5 billion reported for the first half of 2016, which contributed to the record high $5.5 billion of multifamily construction starts reported for the full year 2016. There were eight multifamily projects valued each at $100 million or more that reached groundbreaking during the first half of 2018. On the commercial side, store construction increased 16 percent, and gains were also reported for commercial garages (up 31 percent) and warehouses (up 15 percent). Declines were reported for office buildings (down 9 percent) and hotels (down 46 percent).
    
Commercial and multifamily construction starts in the Boston metropolitan area soared 56 percent during the first half of 2018. Previously, the commercial and multifamily total had dropped 27 percent for the full year 2017 after a 54 percent gain in 2016. Multifamily housing during the first half of 2018 jumped 146 percent, while commercial building slipped 4 percent. The multifamily dollar amount during the first half of 2018 was $2.3 billion, which topped the $2.0 billion in the first half of 2016 that contributed to the record high $3.2 billion reported for the full year 2016. There were four multifamily projects valued each at $100 million or more that reached groundbreaking during the first half of 2018. Commercial building during the first half of 2018 slipped 4 percent from a year ago, due to varied behavior by its individual project types. Office construction starts registered a 26 percent gain and store construction climbed 7 percent during the first half of 2018, but declines were reported for commercial garages (down 16 percent), warehouses (down 44 percent) and hotels (down 71 percent).
    
The Dallas–Fort Worth metropolitan area retreated 23 percent during the first half of 2018 from a year ago, as a 7 percent increase for multifamily housing was outweighed by 36 percent drop for commercial building. For the full year 2017, commercial and multifamily construction starts had fallen 12 percent, which followed very strong increases in 2015 (up 60 percent) and 2016 (up 28 percent). The commercial building total during the first half of 2018 featured a substantial decline for new office starts, down 52 percent, as well as weaker activity for hotels (down 56 percent), commercial garages (down 55 percent), and stores (down 14 percent), while new warehouse starts grew 6 percent. The large commercial building projects entered as construction starts during the first half of 2018 were generally smaller in scale than last year. Multifamily housing during the first half of 2018 was up 7 percent over a year ago.
    
The 7 percent increase for commercial and multifamily starts in the Seattle metropolitan area during the first half of 2018 was the result of a 66 percent surge for multifamily housing, which outweighed a 46 percent decline for commercial building. The Seattle metropolitan area registered yearly increases for its commercial and multifamily total from 2011 through 2017, including gains of 27 percent in 2016 and 8 percent in 2017, so the first half 2018 increase is maintaining a well-established upward track. There were five multifamily projects valued each at $100 million or more that reached groundbreaking during the first half of 2018. The first-half 2018 decline for commercial building was relative to a strong first half of 2017. The largest commercial projects that reached groundbreaking during the first half of 2018 were smaller in scale.
    
The Los Angeles metropolitan area posted a 38 percent decline for commercial and multifamily construction starts during the first half of 2018. Yearly growth had been registered by this metropolitan area from 2010 through 2016, before a 15 percent drop was reported for 2017. Multifamily housing construction starts retreated 48 percent during the first half of 2018, compared to last year’s first half. While the first half of 2017 had seven multifamily projects valued at $100 million or more that reached groundbreaking, there was just one such project during the first half of 2018. Commercial building dropped 22 percent from its elevated first half 2017 amount. Within the commercial total, declines were reported for stores (down 29 percent), hotels (down 39 percent), and warehouses (down 86 percent), while gains were reported for office buildings (up 18 percent) and commercial garages (up 10 percent).
    
Commercial and multifamily construction starts in the San Francisco metropolitan area fell 38 percent during the first half of 2018 from the elevated activity during last year’s first half. This metropolitan area had shown strong annual increases during the past two years, with activity up 95 percent in 2016 and another 30 percent in 2017. The first half of 2017 included the start of several very large projects, with the following allocation by structure type: office building at $780 million, multifamily housing at $387 million, hotel at $95 million, and garage at $38 million. The commercial building amount during the first half of 2018 was down 51 percent from a year ago, with declines for offices (down 81 percent), stores (down 62 percent), and garages (down 18 percent), while gains were reported for hotels (up 84 percent) and warehouses (up 110 percent). Multifamily housing during the first half of 2018 was down 19 percent from its first half 2017 amount.
    
The Chicago metropolitan area registered a 37 percent decline for commercial and multifamily construction starts in the first half of 2018, with commercial building down 11 percent and multifamily housing down 61 percent. The metropolitan area had experienced a particularly strong level of commercial and multifamily construction starts back in 2016, when activity climbed 41 percent, and while starts fell 26 percent for 2017 as a whole it was still a strong year by recent historical standards. The commercial categories during the first half of 2018 retreated to varying degrees, with stores down 8 percent, commercial garages down 17 percent, hotels down 18 percent, office buildings down 23 percent, and warehouses down 52 percent.
    
The Atlanta metropolitan area witnessed a 43 percent reduction for commercial and multifamily construction starts during the first half of 2018 compared to a year ago. This metropolitan area had been one of the latecomers to the commercial and multifamily expansion, as it showed strong yearly growth over the past two years, with 2016 up 58 percent and 2017 up 25 percent. Commercial building during the first half of 2018 was down 51 percent compared to a strong first half of 2017. By individual commercial category, across-the-board declines were reported compared to a year ago, with stores down 8 percent, hotels down 42 percent, commercial garages down 45 percent, warehouses down 51 percent, and office buildings down 65 percent. Multifamily housing during the first half of 2018 was down 33 percent compared to a year ago, which included nine multifamily projects valued each at $50 million or greater. In the first half of 2018 there were four such projects.