Midyear Update: New Construction Starts to Rise 2%

by Kirsten Barnes McGraw Hill Construction Dodge

(Editors Note: Kirsten Barnes is Strategic Account Manager for McGraw Hill Construction Dodge and is the contact for AGC of Washingtons alliance with Dodge that gives AGC members the lowest prices for bidding tools and market intelligence. Email Kirsten or call 425.576.0421.)

Slightly better than previously thought. Thats the conclusion reached in the Midyear Update of the 2012 Dodge Construction Outlook.

The Outlook Midyear Update prepared by Robert Murray Vice President for Economic Affairs at McGraw-Hill Construction predicts that total construction starts for the U.S. will increase 2% this year to $445 billion up from the $434 billion reported for 2011. While slightly better than the flat performance for 2012 construction starts predicted last fall the updated forecast still portrays an industry struggling to gain upward momentum.

The construction industry has yet to move from a hesitant up-and-down pattern to more sustained expansion stated Murray. After plunging 23% in 2009 new construction starts edged up only 1% in 2010 and were unchanged in 2011 so the modest 2% increase predicted for 2012 is really more of the same. The backdrop for the construction industry remains the fragile U.S. economy which continues to see slow employment growth diminished funding from federal and state governments and the uncertainty related to the U.S. fiscal stalemate and the European debt crisis. On the plus side energy costs are now receding interest rates are very low and lending standards are beginning to ease for commercial real estate development.

Given these divergent factors the construction market this year continues to see a mix of pluses and minuses by major sector as follows:

• Single family housing in 2012 will advance 21% in dollars corresponding to a 19% increase in the number of units to 490000 (McGraw-Hill Construction Dodge basis). While still at a very low amount single family housing for the past year has been able to register small yet steady gains.

• Multifamily housing in 2012 will climb 19% in dollars and 18% in units given rising occupancies and rents which reflect elevated demand from potential homebuyers still reluctant or unable to move ahead with purchasing a single family home.

• Commercial building in 2012 will grow 10% following the 12% gain in 2011. Warehouses and hotels will see the largest percentage increases joined this year by a moderate gain for stores while office construction sees more privately financed projects but less government office buildings.

• The institutional building market in 2012 will fall an additional 10% after sliding 11% in 2011. The tough fiscal environment for states and localities continues to dampen school construction and the uncertain economic environment is restraining healthcare facilities.

• The manufacturing building category in 2012 will retreat 20% following the 75% jump in 2011 which featured the start of several unusually large projects.

• Public works construction in 2012 will slide a further 6% after last years 14% decline. This reflects government spending cuts and the absence of a multiyear federal transportation bill.

• Electric utility construction in 2012 will essentially hold steady with its exceptionally strong 2011 amount helped by this years start of two large nuclear power projects.

Copies of the report are available from McGraw-Hill Construction Research and Analytics.