NEW YORK — New construction starts in September advanced 10 percent to a seasonally adjusted annual rate of $604.1 billion, according to McGraw Hill Construction, a division of McGraw Hill Financial. The increase followed an up-and-down pattern during the previous two months, and brought activity to its highest level so far during 2014. Nonresidential building registered a sharp gain, helped by an elevated pace for several institutional categories plus another brisk month for manufacturing plants, while the nonbuilding construction sector (public works and electric utilities) also strengthened. Running counter in September was a decline for residential building. During the first nine months of 2014, total construction starts on an unadjusted basis were $419.5 billion, a 5 percent gain compared to last year.
The September data lifted the Dodge Index to 128 (2000=100), up from a revised 116 for August, and slightly ahead of July's 126 (the previous high for this year). "While the progress for construction starts has been uneven at times on a month-to-month basis, the quarterly averages show that an upward trend has been re-established," stated Robert A. Murray, chief economist for McGraw Hill Construction. "In this year's first quarter, construction starts fell back 10 percent, but then climbed 6 percent in the second quarter and another 6 percent in the third quarter. A key factor in keeping the construction expansion going in 2014 has been the greater role now being played by nonresidential building.
Commercial building has continued to see moderate growth from low levels, and the manufacturing building category is still showing a surge of chemical and energy-related plants reach groundbreaking. What's different in 2014 is that the institutional structure types are now beginning to contribute to the nonresidential building upturn. In contrast, both public works and electric utilities have generally lost momentum during 2014, notwithstanding their strong showing in September. And, residential building is now providing a much smaller lift than in the past two years, as the sluggish performance by single family housing has outweighed further gains by multifamily housing."
Nonresidential building in September increased 15 percent to $228.5 billion (annual rate), after pulling back in August. The institutional building group soared 33 percent, with substantial support coming from a 322 percent hike for the amusement and recreational category, which reflected the start of the $948 million Atlanta Falcons retractable-roof stadium in Atlanta and $717 million for the casino portion of the $925 million National Harbor MGM Casino Resort in Oxon Hill, MD. Also climbing sharply in September was transportation terminal work, up 171 percent, led by the $240 million renovation of the 95th Street train and bus terminal in Chicago and a $144 million aircraft hangar in Wichita, KS.
Educational facilities, the largest nonresidential building category by dollar volume, climbed 34 percent in September. Large projects that helped to lift the educational total included a $150 million research lab in Cambridge MA, plus several sizeable high schools - two in Texas valued at $150 million and $100 million respectively, and a $130 million high school in the state of Washington. Through the first nine months of 2014, the educational facilities category increased 10 percent from a year ago, including a 16 percent gain for high schools. The public buildings category (courthouses and detention facilities) in September grew 11 percent, but religious buildings fell 30 percent. The healthcare facilities category in September plunged 44 percent, sliding back from a strong August, although the latest month did include the start of a $206 million hospital expansion in San Antonio.
The manufacturing plant category in September surged 105 percent, continuing to show the highly volatile month-to-month behavior that's been present during 2014. Providing the upward push in September was the start of a $1.3 billion methanol plant in Louisiana and a $225 million tire manufacturing plant in Georgia. The commercial building group in September fell 15 percent, retreating from its heightened amount in August. Store construction declined 22 percent, after being lifted in August by the $157 million retail portion of the $957 million Nordstrom Tower in New York, NY. Office construction dropped 23 percent, although September did include the start of such projects as a $700 million data center for Microsoft in West Des Moines, IA, a $250 million office tower in Chicago, a $105 million office tower in Houston TX, and a $100 million headquarters building for American Greetings in Westlake, OH.
Hotel construction in September slipped a modest 1 percent, with some support coming from $140 million for the hotel portion of the National Harbor MGM Casino Resort in Oxon Hill MD. Warehouse construction was the one commercial structure type able to post a gain in September, rising 2 percent with the help of groundbreaking for a $90 million distribution center in Georgia.
Nonbuilding construction, at $162.9 billion (annual rate), jumped 38 percent in September. The electric utility category, which has trended downward for the past year and a half, climbed 107 percent from its lackluster August pace. There were two very large electric power plant projects included as September starts - a $1.7 billion retrofit of a coal-fired power plant in Illinois and a $1.0 billion solar power facility in Nevada. The public works project types as a whole advanced 26 percent in September. The miscellaneous public works category increased 83 percent, which reflected the start of the $834 million Regional Connector Transit Corridor light rail project in Los Angeles, a $204 million liquefied natural gas pipeline project in Tucson, and a $150 million gas main replacement project in Hackensack, NJ. The miscellaneous public works category in September also included groundbreaking for the $672 million Atlanta Braves baseball stadium in Smyrna, GA. (In the Dodge classification of sports arenas and stadiums, projects with a roof are included in the amusement category while projects without a roof are included in the miscellaneous public works category.) River/harbor development in September climbed 40 percent, lifted by a $117 million storm sewer project in New Orleans, while sewer construction rose 31 percent with the boost coming from a $285 million waste water treatment plant in Baltimore. Highways and bridges each climbed 8 percent in September, although both are still trending downward as shown by the following year-to-dates declines - highways, down 11 percent; and bridges, down 21 percent. Water supply construction was the one public works category to lose momentum in September, sliding 27 percent.
Residential building in September dropped 9 percent to $212.7 billion (annual rate). Multifamily housing fell 23 percent, retreating from the strong activity that was reported in August. Even with this decline, September still included groundbreaking for four multifamily projects valued each in excess of $100 million. They were the following - a $266 million condominium hotel in Hollywood CA, the $230 million multifamily portion of a $370 million mixed-use project in Washington DC, a $215 million condominium complex in Honolulu HI, and a $183 million condominium tower in Miami FL. Through the first nine months of 2014, the top five metropolitan areas in terms of the dollar amount of new multifamily projects were - New York NY, Washington DC, Miami FL, Los Angeles CA, and San Francisco CA. Metropolitan areas ranked six through ten were - Dallas-Ft. Worth TX, Boston MA, Houston TX, Seattle WA, and Denver CO. Single family housing in September slipped 3 percent, marking the third straight month of modest erosion after a brief pickup in late spring, which in a broad sense maintains the flat pattern that's been present throughout 2014. In September, weaker single family construction was reported in the South Atlantic, down 6 percent; the South Central, down 4 percent; and the West, down 3 percent; while gains were reported in the Midwest and Northeast, up 2 percent and 4 percent respectively. Murray indicated, "This year's stall for single family housing means that the lift provided to total construction is much less than what occurred during the prior two years, when single family housing advanced 29 percent in 2012 and 26 percent in 2013. The 20 percent down payment requirement, generally in effect since the end of the financial crisis, has made it difficult for lower and middle income households to get approved for a mortgage, and more attention is now being directed by federal officials at ways to expand access to home loans."
The 5 percent gain for total construction starts on an unadjusted basis during the first nine months of 2014 was the result of a varied pattern by major construction sector. Nonresidential building climbed 17 percent year-to-date, due to this performance by segment - commercial building, up 13 percent; manufacturing building, up 112 percent; and institutional building, up 5 percent. Residential building grew 6 percent year-to-date, with single family housing up only 1 percent while multifamily housing advanced 20 percent. Nonbuilding construction decreased 9 percent year-to-date, with public works down 8 percent and electric utilities down 13 percent. By geography, total construction starts in the first nine months of 2014 revealed these gains for the five major regions - the South Central, up 15 percent; the South Atlantic, up 5 percent; the Northeast, up 4 percent; and the Midwest and West, each up 1 percent.