The construction sector continued to face headwinds in June, with high interest rates and a decline in manufacturing activity leading to a 13% drop in nonresidential building starts.
This contributed to a broader 19% decrease in total construction starts from May to June, according to the Dodge Construction Network (DCN). While residential starts saw a positive 9% increase, the overall picture paints a picture of a sluggish market.
Despite the June downturn, total construction starts remain up 7% for the first half of 2023 compared to the same period last year. This growth is largely driven by a 14% surge in residential starts, while nonresidential starts only saw a 1% increase.
“The construction market remains sluggish as high interest rates continue reverberating through the sector,” explains Richard Branch, DCN’s chief economist. However, Branch notes a cautiously optimistic outlook among owners and developers, as evidenced by the relatively stable Dodge Momentum Index, which tracks nonresidential building projects in the planning phase. This suggests that projects are being held back by current market conditions, with the potential for a surge in activity once interest rates decline.
Nonresidential Slowdown:
The 13% drop in nonresidential starts in June reflects a significant decline in manufacturing projects, which fell by 34%. Institutional starts also saw a 19% decrease, while commercial starts showed a modest 4% increase. This trend is reflected in year-to-date figures, with a 19% decrease in manufacturing starts and a 3% decline in commercial starts, offset by an 11% rise in institutional starts.
Notable Nonresidential Projects:
Despite the overall slowdown, some large-scale projects broke ground in June, including the $1.5 billion QTS Albany 1 and 2 data centers in Ohio, the $550 million First Solar manufacturing plant in Louisiana, and the $520 million TGH Taneja Tower Surgical building in Tampa.
Residential Sector Resilient:
The residential sector showed more resilience in June, with starts climbing by 9%. This growth was fueled by a 23% increase in multi-family starts and a 4% rise in single-family starts. Year-to-date, total residential starts are up 14%, driven by a 25% increase in single-family starts, while multi-family starts saw a 6% decline.
Key Residential Projects:
Notable multi-family projects breaking ground in June include the $1 billion Bentley Residences in Florida, the $600 million Cipriani Residences in Miami, and the $434 million Marketplace apartments in California.
Regional Trends:
Construction starts declined in all regions of the country in June.
Looking Ahead:
While the immediate outlook remains challenging, the construction industry anticipates a rebound in activity as interest rates decline. The large number of projects currently in the planning phase suggests a potential for a surge in construction activity in the future, particularly as interest rates become more favorable.
Source: Dodge Construction Network with additional information added by GlassBalkan.
