Nonresidential construction starts fall 14%; ABI outlook cloudy

Dive Brief:

• Nonresidential construction starts plummeted 14% in June, as project owners became spooked by the likelihood of recession in an era of rising interest raise and continued volatility in materials pricing, according to Dodge Data and Analytics.
• The decline was broad, with commercial starts in sectors such as retail, warehouses and offices down 16%, manufacturing starts off 14% and institutional starts including education, healthcare and public buildings falling 12%.
• “Construction markets are getting jittery as the odds of recession increase,” said Richard Branch, chief economist for Dodge. “While projects are still moving through the planning process, the velocity has downshifted, reflecting uncertainties over how rising interest rates will impact the economy, construction material prices and ultimately, construction starts.”

Branch said construction indicators are likely to be more volatile than normal, particularly in the commercial sector. The downbeat nonresidential numbers, which helped drag all of construction down 5% in June, came on the heels of the Federal Reserve’s Beige Book report, which noted anecdotal evidence of slowing construction activity amid recession fears.

On the residential front, multifamily starts, which include apartment buildings, fell 3% lower for the month. But for the year, multifamily starts were still 25% higher.

The largest multifamily structures to break ground in June were the $450 million Neptune/Sixth mixed-use project in Brooklyn, New York, the $425 million 250 Water Street apartments in New York City, and the $369 million 5th & Colorado mixed-use building in Austin, Texas, according to Dodge.

The news from Dodge wasn’t all bad. Nonbuilding construction starts, which includes roads, bridges and power plants, were up 13% in June, driven by a large solar project in Nevada and a transmission line in Utah and Wyoming. Total construction starts were still 7% higher for the year, with nonresidential projects posting a 17% gain over 12 months.

That silver lining was also reflected in the latest release of the Architectural Billings Index, a measure of work architects are starting now, which typically predates construction by nine to 12 months. June’s ABI came in at 53.2, with any reading above 50 indicating an increase in activity. Still, that was slightly down from May’s number of 53.5, and a reverse of the trend seen earlier in the year.

“After a burst of stronger growth in the spring, the pace has returned to more modest territory over the last two months,” the AIA said in its release of the numbers. “Still-rising inflation, as well as higher interest rates and a continued shortage of certain building and construction materials, means that the future is looking increasingly cloudy.”