Most leading U.S. metropolitan areas for commercial and multifamily construction starts showed sizeable gains in 2016 compared to 2015, according to Dodge Data & Analytics. However, New York City, the top metropolitan market by dollar amount, retreated 15 percent to $29.8 billion following its 67-percent surge to $35.2 billion in 2015.
Eight of the next nine metropolitan areas in the top ten were able to register double-digit gains during 2016. For the top 20 metropolitan areas, 16 were able to show double-digit gains compared to 2015. At the U.S. level, commercial and multifamily construction starts in 2016 were reported at $186.3 billion, up 7 percent from 2015.
Rounding out the top five metropolitan areas in 2016, with their percent change from 2015, were: Los Angeles, $9.8 billion, up 44 percent; Chicago, $8.3 billion, up 34 percent; Washington, D.C., $8.1 billion, up 35 percent; and Dallas-Fort Worth, $8.0 billion, up 16 percent. Metropolitan areas ranked 6 through 10 were: Miami, $7.5 billion, up 14 percent; Boston, $7.1 billion, up 50 percent; San Francisco, $5.0 billion, up 96 percent; Atlanta, $4.8 billion, up 60 percent; and Seattle, $4.3 billion, down 4 percent.
The commercial and multifamily total is comprised of office buildings, stores, hotels, warehouses, commercial garages and multifamily housing. At the U.S. level, the 7-percent increase for the commercial and multifamily total in 2016 was the result of an 11-percent advance for commercial building and a 3 percent gain for multifamily housing. Compared to its 7-percent rise in 2015, commercial building at the U.S. level was able to pick up the pace in 2016, while multifamily housing witnessed substantially slower growth compared to its 22-percent jump in 2015. A primary reason for the smaller 2016 increase for multifamily housing at the U.S. level was a downturn by multifamily construction starts in the New York City metropolitan area, which retreated 28 percent following its exceptionally strong amount in 2015. Excluding New York, multifamily housing for the nation in 2016 would be up 13 percent, about the same as the corresponding 14-percent increase in 2015.
“What stands out about 2016 is that growth for commercial and multifamily construction starts became broader geographically,” says Dodge chief economist Robert A. Murray. “Back in 2015, the New York, N.Y., metropolitan area led the upturn by soaring 67 percent, while the next nine markets combined grew 8 percent. In 2016, the 15-percent downturn in the New York market was countered by a 33-percent hike for the next nine markets. As a result, the New York share of the U.S. total for commercial and multifamily construction starts settled back from 20 percent in 2015 to 16 percent in 2016, which was still relatively high compared to the 13 percent share during the 2010-2014 period.”
“Both commercial building and multifamily housing have benefitted from a number of positive factors in recent years,” Murray adds. “These included declining vacancies, rising rents, low interest rates, and some easing of bank lending standards for commercial real estate loans. That supportive environment began to shift during 2016, with vacancies leveling off, interest rates edging up at year’s end, and bank lending standards for commercial real estate loans beginning to tighten, especially for multifamily projects. Yet, aside from multifamily housing, the levels of construction remain generally low given the hesitant nature of the upturn to date, meaning there’s yet to be any widespread signs of overbuilding that typically show up five years into an expansion. While market fundamentals may not be quite as supportive in 2017, it’s still expected that commercial building will be able to register moderate growth, led by offices and warehouses. As for multifamily housing, the geographically broader participation by metropolitan area that emerged during 2016 is expected to continue this year, which should help the national total stay close to the elevated activity reported during 2015 and 2016. Other factors that could affect commercial and multifamily construction starts in 2017 would be two items proposed by the Trump Administration – the reduction in business tax rates to spur investment and the easing of the Dodd-Frank regulations on the banking sector.”
The 15-percent commercial and multifamily decline for the New York metropolitan area in 2016 was due to the 28 percent slide by multifamily housing after its 53 percent hike in 2015. At the same time, the commercial building categories as a group grew an additional 4 percent in 2016, which followed a 95-percent surge in 2015. Multifamily housing in New York City had been supported by the 421-a program, which provided tax incentives to developers who included affordable housing in their developments, according to Murray.
The New York metropolitan area in 2015 had featured 44 multifamily projects valued each at $100 million or more, including five at $500 million or more.
For the commercial building categories in the New York metropolitan area, new office building starts retreated a slight 2 percent in 2016, staying very close to the robust dollar amount (up 138 percent) that was reported in 2015. Hotel construction climbed 60 percent. Store construction starts dropped 28 percent.
The Los Angeles metropolitan area in 2016 registered a 44-percent increase, moving up to the nation’s second largest market for commercial and multifamily construction starts after ranking number three in 2015. Multifamily housing in 2016 soared 50 percent while commercial building advanced 36 percent. There were 14 multifamily projects valued at $100 million or more that reached groundbreaking in 2016, compared to ten such projects in 2015. Substantial percentage growth was reported for offices, up 67 percent, and hotel construction starts were also up considerably, rising 77 percent. Store construction improved 7 percent on top of its 96-percent advance in 2015.
The 34 percent increase for Chicago in 2016 enabled this metropolitan area to move up to the nation’s third largest market for commercial and multifamily construction starts, after ranking No. 5 in 2015. Multifamily housing jumped 82 percent in 2016 while commercial building held steady with its 2015 amount. There were 10 multifamily projects valued at $100 million or more that reached groundbreaking in 2016, compared to five such projects in 2015. Office construction grew 22 percent in 2016. On the negative side, declines in 2016 were reported for hotels, down 45 percent, and stores, down 3 percent.
The Washington, D.C., metropolitan area climbed 35 percent in 2016, with commercial building up 56 percent and multifamily housing up 20 percent. Much of the lift for commercial building came from an 87-percent jump for office construction, which featured seven projects valued at $100 million or more. The hotel category advanced 113 percent. Construction start declines were reported for stores, down 14 percent, and warehouses, down 41 percent. The 20 percent increase for multifamily housing featured nine projects valued at $100 million or more.
The Dallas-Fort Worth metropolitan area registered an additional 16-percent gain for commercial and multifamily construction starts in 2016, with commercial building up 13 percent and multifamily housing up 22 percent. Office construction increased 31 percent, and hotel construction climbed 33 percent. Store construction starts grew a moderate 6 percent in 2016, but warehouse starts fell 34 percent. As for multifamily housing, there were 5 projects valued at $100 million or more that reached groundbreaking in 2016.