Surge in Non-Residential Construction April 03, 2007
Reed Construction Data (RCD) announced today that the year-to-date value of construction starts through February 2007, excluding residential contracts, totaled $47.804 billion, 28.8% higher than in 2006. However, preliminary estimates suggest that this non-residential gain will be approximately offset by a decline in the value of residential starts. The recent surge in non-residential starts has stuffed the project pipeline, assuring continued growth in job-site construction activity this year on top of the 13.1% increase estimated by the U.S. Census Bureau over the year ending in January 2007.

The value of construction starts is summarized from RCD’s database of all active construction projects in the U.S. Unreported project values were estimated using RSMeans construction–cost models.

Non-residential starts are expected to trend generally higher through 2007, but at a much slower pace than in the first two months. Late data and revisions boosted the previously reported January starts total by 2.4%, but reduced the total value of starts for all of 2006 by 0.6%. The February non-residential starts total was 32.7% higher than in the same, unusually weak, month last year.

Offices, hotels, nursing home/assisted living facilities, hospitals and retail are the fastest growing markets early in 2007. Office starts were 135% higher than in the first two months of last year. This building surge is being driven by much higher office rents as leases signed during the depressed economy in 2001–2002 expire. Also, 612,000 new jobs were added in the last year in the financial, business and professional services industries. Rising hotel starts (+83%) were the result of an 8% increase in room rates over the past year. Note that hotel starts are likely near the peak for this building cycle.

The increase in starts for hospitals and residential health-care facilities is a continuation of a trend that began early in 2006. Reed Construction Data expects the health-care building boom to continue at least into 2008. The demographic demand is favorable and improving for both types of buildings, but the pickup in building activity is largely due to three factors: (1) the influx of construction funds from more people with health insurance; (2) well-above-average investment returns in non-profit institution capital funds; and (3) continuing purchases of health-care facilities by for-profit corporations
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