New Construction Starts in 2017 to Increase 5% to $713 Billion

Dodge Outlook Report Predicts Moderate Growth for Most Project Types

According to the Dodge Data & Analytics (http://www.construction.com) “2017 Dodge Construction Outlook,” total U.S. construction starts for 2017 will advance 5 percent to $713 billion, following gains of 11 percent in 2015 and an estimated 1 percent in 2016.

“The U.S. construction industry has witnessed signs of deceleration in 2016, following several years of steady growth,” stated Robert Murray, chief economist for Dodge Data & Analytics. “Total construction starts during the first half of this year lagged behind what was reported in 2015, raising some concern that the current construction expansion may have run its course. However, the early 2016 shortfall reflected the comparison to unusually elevated activity during the first half of 2015, lifted by 13 very large projects valued each at $1 billion or more, such as a $9-billion liquefied natural gas export terminal in Texas and a $2.5-billion office tower in New York City.

“As 2016 has proceeded, the year-to-date shortfall has grown smaller, easing concern that the construction industry may be in the early stage of cyclical decline,” he continued. “Instead, the construction industry has now entered a more mature phase of its expansion, one that is characterized by slower rates of growth than what took place during the 2012-2015 period, but still growth. Since the construction start statistics will lead the pattern of construction spending, this means that construction spending can be expected to see moderate gains through 2017 and beyond.”

On balance, there are a number of positive factors, which suggest the construction expansion has room to proceed, Murray said. The U.S. economy in 2017 is anticipated to see moderate job growth, market fundamentals for commercial real estate should remain generally healthy, and more funding support is coming from state and local bond measures. “Although the global economy in 2017 will remain sluggish, energy prices appear to have stabilized, interest rate hikes will be gradual and few, and a new U.S. president will have been elected,” Murray said. “For 2017, total construction starts are forecast to rise 5 percent to $713 billion. Gains of 8 percent are expected for both residential building and nonresidential building, while non-building construction slides a further 3 percent.”

The pattern of construction starts by more specific sectors is the following:

• Single-family housing will rise 12 percent in dollars, corresponding to a 9-percent increase in units to 795,000 (Dodge basis). Access to home mortgage loans is improving, and some of the caution exercised by potential homebuyers will ease with continued employment growth and low mortgage rates. Older members of the Millennial generation are now moving into the 30- to 35 year-old age bracket, which should begin to lift demand for single-family housing.
• Multifamily housing will be flat in dollars and down 2 percent in units to 435,000 (Dodge basis). This project type now appears to have peaked in 2015, lifted in particular by an exceptional amount of activity in the New York metropolitan area, which is now settling back. Continued growth for multifamily housing in other metropolitan areas, along with still generally healthy market fundamentals, will enable the retreat at the national level to stay gradual.
• Commercial building will increase 6 percent on top of the 12-percent gain estimated for 2016. Office construction is showing improvement from very low levels, lifted by the start of several signature office towers and broad development efforts in downtown markets. Store construction should show some improvement from a very subdued 2016, and warehouses will register further growth. Hotel construction, while still healthy, will begin to retreat after a strong 2016.
• Institutional building will advance 10 percent, resuming its expansion after pausing in 2015 and 2016. The educational facilities category is seeing an increasing amount of K-12 school construction, supported by the passage of recent school construction bond measures. More growth is expected for the amusement category (convention centers, sports arenas, casinos) and transportation terminals.
• Manufacturing plant construction will increase 6 percent, beginning to recover after steep declines in 2015 and 2016 that reflected the pullback for large petrochemical plant starts.
• Public works construction will improve 6 percent, regaining upward momentum after slipping 3 percent in 2016. Highways and bridges will derive support from the new federal transportation bill, while environmental works should benefit from the expected passage of the Water Resources Development Act. Natural gas and oil pipeline projects are expected to stay close to the volume that’s been present in 2016.