Commercial and Multifamily Construction Starts in 2018 Showed Mixed Performance Across Top Metropolitan Areas
The leading U.S. metropolitan areas for commercial and multifamily construction starts registered a varied performance during 2018 compared to the previous year, according to Dodge Data and Analytics. Of the top 10 markets, ranked by the dollar amount of construction starts, four reported greater activity in 2018 while six showed declines. For the metropolitan areas ranked 11 through 20, seven reported gains while three reported declines. At the national level, the volume of commercial and multifamily construction starts in 2018 was $212.4 billion, up 4%, which represented a moderate rebound after a 3% setback in 2017.
The New York, N.Y., metropolitan area, at $28.7 billion in 2018, continued to be the leading market in the U.S. for commercial and multifamily construction starts, advancing 10% after its 13% drop in 2017. New York, N.Y.’s share of the U.S. total was 14% in 2018, up from 13% in 2017, although not as high as its peak 19% share reported in 2015. The next three markets in the 2018 top ten all showed gains relative to 2017 – Washington, D.C. ($9.5 billion), up 28%; Boston ($9.2 billion), up 72%; and Miami, Fla. ($8.2 billion), up 19%. The remaining six markets in the top 10 with their declines relative to 2017 were — Los Angeles ($7.0 billion), down 11%; Dallas-Ft. Worth, Texas ($6.9 billion), down 16%; Chicago ($6.7 billion), down 1%; San Francisco ($6.0 billion), down 18%; Atlanta ($5.7 billion), down 14%; and Seattle ($5.7 billion), down 14%.
For the metropolitan areas ranked 11 through 20, the seven showing greater activity in 2018 relative to 2017 were — Houston ($4.5 billion), up 9%; Austin, Texas ($4.0 billion), up 22%; San Diego ($3.1 billion), up 12%; Minneapolis-St. Paul ($3.0 billion), up 16%; Phoenix ($2.8 billion), up 5%; Kansas City, Mo.-Kan. ($2.8 billion), up 46%; and Sacramento, Calif. ($2.3 billion), up 44%. The three metropolitan areas in this group with decreased dollar amounts of commercial and multifamily starts in 2018 were — Philadelphia ($4.0 billion), down 6%; Denver ($2.8 billion), down 23%; and Orlando, Fla. ($2.6 billion), down 19%.
The commercial and multifamily total is comprised of office buildings, stores, hotels, warehouses, commercial garages and multifamily housing. Not included in this ranking are institutional building projects (e.g., educational facilities, hospitals, convention centers, casinos, transportation terminals), manufacturing buildings, single family housing, public works and electric utilities/gas plants. The 4% increase for commercial and multifamily construction starts at the U.S. level in 2018 reflected greater activity for multifamily housing, up 8% to $95.1 billion, and the commercial building categories as a group, up 1% to $117.3 billion. Multifamily housing in 2017 had fallen 8% after appearing to have reached a peak in 2016, before posting the 8% rebound in 2018. After surging 23% in 2016, commercial building starts have shown slight improvement, edging up 1% in both 2017 and 2018.
“The brisk expansion for the U.S. economy during 2018 enabled market fundamentals for commercial building and multifamily housing to strengthen, after having shown some erosion during the previous year,” stated Robert A. Murray, chief economist for Dodge Data & Analytics. “This provided the backdrop for the healthy volume of commercial and multifamily construction starts that took place during 2018. A further boost came as a number of very large projects reached groundbreaking last year. For office buildings, this included such projects as the $1.8 billion Spiral office building in the Hudson Yards district of New York, N.Y., a $665 million office building on North Wacker Drive in Chicago, and the $644 million office portion of the $1.3 billion Winthrop Square Tower in Boston. Large data center project starts, which are included in the office category, were also very strong in 2018, with the Washington, D.C., area seeing the start of eleven such projects valued at a combined $1.6 billion. Hotel construction starts in 2018 were led by such projects as the $643 million hotel portion of the $1.5 billion Manchester Pacific Gateway mixed-use complex in San Diego and the $450 million Omni Seaport Hotel in Boston. The rebound for multifamily housing in 2018 was supported by such projects as the $700 million City View Tower at Court Square and the $600 million 85 Jay Street high-rise, both in the New York, N.Y., metropolitan area, as well as the $580 million multifamily portion of Boston’s Winthrop Square Tower and the $429 million multifamily portion of Seattle’s 1200 Stewart Street mixed-use high-rise.”
“For 2019, the economic environment may not be quite as supportive to commercial and multifamily construction starts as what took place during 2018,” Murray continued. “The benefits of tax reform on economic growth are expected to wane, which may also dampen occupancies and rent growth, particularly as the supply of commercial and multifamily space rises with the completion of projects that reached groundbreaking in recent years. Furthermore, the most recent survey of bank lending officers conducted by the Federal Reserve suggests that a more cautious lending stance emerged during the latter half of 2018, especially with regard to loans for multifamily projects.”
