Dive Brief:
- The value of September construction starts fell 5% month-over-month to $709.6 billion, according to Dodge Data & Analytics, piling on to July and August's respective 9% declines. Year to date, the value of total starts was down 1% compared to the period ending September 2017.
- The September decline was driven by a 13% drop in nonbuilding construction and a 6% decrease in the nonresidential sector. The value of residential starts increased by 2%. In the nonresidential sector, the value of office construction starts plunged 38%, with the largest projects getting underway ranging from only $75 million to $90 million, a huge shift from August, which included a $520 million state government office in Sacramento, California. Manufacturing plant construction, however, was up 36% on the tails of a few large starts. Nonbuilding's retreat was largely due to a lack of the large electric utility and gas plants that populated August figures.
- The Dodge Index dropped seven points to a September reading of 150. Robert A. Murray, Dodge's chief economist, said the pace of starts in May and June was unsustainable and that the industry should look at the activity on a quarterly basis to get a more accurate read of the industry landscape without the "wide swings" that can influence month-to-month reports. Murray added that the start levels are almost where they were at the end of last year but that it's too early to assume that challenges like higher construction costs and increasing interest rates have overtaken industry positives like increased funding for public projects, economic growth and a relaxing of lending practices.
Dive Insight:
Like Murray, other analysts have not yet become bearish on where the construction industry is headed, particularly in certain sectors like hotels.
With Marriott International, Hilton Worldwide and InterContinental Hotel Groups leading the way, the U.S. made up 40% of the world's record-setting hotel project pipeline, according to a report from Lodging Econometrics last month. That totaled out to 5,160 projects of the global 12,900 either in planning or construction phases. Of the 10 metros around the world with the most activity, New York City came out on top with 169 projects, followed by Dallas with 156 and Houston with 150.
In addition, research company GlobalData predicted earlier this month that global construction output will rise by 3.6% per year for the next five years. The firm projected that the U.S. will contribute to that activity but the standouts are expected to be the Middle East and Africa with expected combined average growth of almost 6.5% a year.
