Source: Dodge Data & Analytics, New York
A mainstay in industry forecasting and business planning, the Dodge Construction Outlook projects that total U.S. construction starts for 2016 will rise 6 percent to $712 billion, following gains of 9 percent in 2014 and an estimated 13 percent in 2015.
“The expansion for the construction industry has been underway for several years, with varying contributions from each of the major sectors,” says Dodge Data & Analytics Chief Economist Robert Murray. “Total activity, as measured by construction starts data, is on track this year to record the strongest annual gain so far in the current expansion.
“Much of this year’s lift has come from nonbuilding construction, reflecting the start of several massive liquefied natural gas terminals in the Gulf Coast region, as well as renewed growth for new power plant starts. Residential building, up 18 percent this year, has witnessed continued strength for multifamily housing while single-family housing seems to have re-established an upward trend after its 2014 plateau. At the same time, nonresidential building has decelerated this year after surging 24 percent in 2014, and is now predicted to be flat to slightly down given a sharp pullback for new manufacturing plant starts and some loss of momentum by its commercial and institutional building segments.”
“For 2016, the economic environment should support further growth for the overall level of construction starts. While short term interest rates will be going up, given the expected rate hikes by the Federal Reserve, the increases in long-term interest rates should stay gradual,” Murray adds. “On the plus side, the U.S. economy continues to register moderate job growth, lending standards are still easing, market fundamentals for commercial real estate continue to improve, and more funding support is coming from state and local construction bond measures.
“Total construction starts in 2016 are forecast to advance 6 percent to $712 billion, with gains for residential building, up 16 percent; and nonresidential building, up 9 percent; while the nonbuilding construction sector retreats 14 percent. If the volatile electric power and gas plant category within nonbuilding construction is excluded, total construction starts for 2016 would be up 10 percent, after a corresponding 8 percent gain in 2015.”
The 2016 Dodge Construction Outlook offers more specifics, by sector:
- Single-family housing will rise 20 percent in dollars, corresponding to a 17 percent increase in units to 805,000 (Dodge basis). Access to home mortgage loans is improving, and some of the caution exercised by potential homebuyers will ease with continued employment growth.
- Multifamily housing will increase 7 percent in dollars and 5 percent in units to 480,000 (Dodge basis), slower than the gains in 2015 but still on an upward trajectory. Low vacancies, rising rents, and the Millennials’ demand for apartments will encourage more development.
- Commercial building will increase 11 percent, up from the 4 percent gain estimated for 2015. Office construction will resume its leading role in the commercial building upturn, aided by more private development as well as construction activity related to technology and finance firms.
- Institutional building will advance 9 percent, picking up the pace after a 6 percent rise trending for 2015. The educational facilities category is seeing an increasing amount of K-12 school construction, supported by recent bond measures.
- Manufacturing plant construction will recede an additional 1 percent in dollar terms, following the steep 28 percent plunge for 2015 that reflected pullback of large petrochemical plant starts.
- Public works will be flat with its 2015 amount, as a modest reduction for highways and bridges is balanced by some improvement for environmental categories. The benefits of an impending multiyear federal transportation bill will show up at the construction site later in 2016 and into 2017.
- Electric utilities and gas plants will fall 43 percent after a sharp 159 percent jump in 2015. The lift coming from new starts for liquefied natural gas export terminals will be substantially less, and new power plant starts will recede moderately.