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"December Construction Slips 1%; 2005 up 10%", © Construction.com, 1/30/06

New York, N.Y. - January 30, 2006 - New construction starts retreated 1% in December to a seasonally adjusted annual rate of $664.6 billion, according to McGraw-Hill Construction, a division of The McGraw-Hill Companies. Residential building continued to settle back from the record pace achieved earlier in the year, offsetting modest December gains for nonresidential building and nonbuilding construction (public works and electric utilities). For 2005 as a whole, total construction advanced 10% to $651.4 billion. This was close to the 11% increase reported for 2004, and well above the 2% to 5% annual growth during the 2001-2003 period.

The December statistics produced a reading of 200 for the Dodge Index (1996=100), down from a revised 201 for November. For all of 2005, the Dodge Index averaged 196. The pattern for total construction over the course of 2005 showed a sluggish first quarter, followed by strengthening activity in the second and third quarters, and then a mild loss of momentum in the fourth quarter. "Higher materials prices appeared to dampen the nonresidential sector at the outset of 2005, as developers deferred and redesigned projects to deal with rising costs," stated Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction. "At the same time, market fundamentals such as occupancies and rents improved, and this helped nonresidential building to regain an upward trend as the year progressed. The 2005 construction market also featured a robust performance by single family housing, which established a new annual high. By year's end, though, homebuilding began to ease back, and the extent to which this cooling off continues will be a major factor shaping the 2006 construction market."

Nonresidential building in December increased 2% to an annual rate of $180.7 billion. Healthcare facilities jumped 27%, boosted by the start of three large hospital projects located in New Jersey ($150 million), Michigan ($148 million), and California ($138 million). Hotel construction also had a strong month, rising 23%, with the push coming from groundbreaking for a $131 million hotel in Saint Charles MO, a $95 million convention-center hotel in Lombard IL, and a $92 million hotel tower in Las Vegas NV. Warehouses and offices advanced in December, with respective gains of 21% and 15%, while manufacturing plant construction rebounded 56% from a very weak November. On the negative side, December showed weaker activity for school construction, down 3%; amusement-related projects, down 14%; public buildings (courthouses and detention facilities), down 17%; churches, down 23%; and transportation terminals, down 50%. The December decline for the amusement category was cushioned by the start of a $315 million sports arena complex in Newark NJ.

For 2005 as a whole, nonresidential building increased 5% to $171.9 billion, with much of the growth coming from the institutional structure types. School construction climbed 8%, once again showing expansion after the loss of momentum during the previous three years. Murray noted, "There's still a substantial need for more classroom space, both new and renovated, and school construction is not being dampened by tight fiscal conditions to the same extent as what occurred a few years ago." Healthcare facilities construction in 2005 jumped 18%, achieving a record volume for this structure type. During 2005, there were 42 hospital projects valued at $75 million or greater that reached groundbreaking, versus 22 such projects in 2004. The public building category in 2005 improved 9% after a weak 2004, while transportation terminals increased 12%. Major airline terminal projects that started in 2005 were located in Indianapolis IN ($270 million), New York NY ($200 million), and San Jose CA ($125 million). The two institutional structure types that registered declines for 2005 were amusement-related projects, down 3%; and churches, down 11%.

The commercial categories in 2005 were mixed. Store construction advanced 4%, the third yearly gain in a row, as this structure type continues to be supported by the expansion efforts of major retailers. Hotel construction jumped 22%, helped by rising occupancies and room rates. On the negative side, the deferral of projects due to higher costs had a noticeable impact on warehouses, down 4%; and offices, down 11%. While the office market in 2005 showed improving fundamentals, as vacancy rates receded, there were also a fewer number of very large projects that reached the construction start stage. For office projects valued at $75 million or greater, there were 9 such projects reaching groundbreaking in 2005, versus 19 in 2004. The manufacturing building category in 2005 grew 5% in dollar volume, helped by the start of three very large semiconductor plants.

Residential building in December fell 2% to annual rate of $378.5 billion, as single family housing dropped 3% while multifamily housing increased 4%. After reaching a peak in September, residential building has fallen for three months in a row.

The annual total for residential building in 2005 came to $378.4 billion, up 14%. Single family housing grew 12%, and achieved a new high in dollar terms ($315.5 billion) and the number of starts (1.630 million units). The low cost of financing continued to support demand for single family homes, with long-term rates moving upward only slightly despite the steady increase reported for short-term rates. "While still robust, the single family market began to show some vulnerability towards the end of 2005," indicated Murray. "This includes a growing inventory of unsold homes in some markets, and it's generally expected that 2006 will see a slower pace for construction." Multifamily housing for full year 2005 soared 26% in dollar terms, while the number of dwelling units rose a more moderate 5%. The huge dollar increase reflected the surge in condominium development that took place in 2005, including the start of such luxury high-rises as the $641 million condominium/apartment portion of the Trump Tower project in Chicago. Construction of multifamily housing was especially strong in the nation's top five markets ranked by dollar volume - New York, up 12%; Miami, up 54%; Chicago, up 72%; Washington DC, up 22%; and Los Angeles, up 21%. On a regional basis, residential building in 2005 performed as follows - the South Atlantic, up 20%; the South Central, up 16%; the West, up 15%; the Northeast, up 7%; and the Midwest, up 4%.
 

Nonbuilding construction in December grew 2% to an annual rate of $105.4 billion. Electric utility construction jumped 69% from a very weak November, helped by the start of a $200 million power plant project in West Virginia. Also posting gains in December were river/harbor development, up 30%; and mass transit and site work, up 8%. Highways and bridges settled back from the prior month, with respective declines of 3% and 4%, although the bridge category did include the start of a $271 million upgrade to New York City's Triboro Bridge. Water supply construction in December retreated 4%, while sewers dropped 11%.

For the full year 2005, nonbuilding construction advanced 7% to $101.2 billion. The environmental categories reported the largest increases, with river/harbor development up 20%, sewers up 18%, and water supply systems up 14%. On the transportation side, highways and bridges showed respective gains 5% and 13%, while mass transit and site work dropped 2%. During the first half of 2005, highways and bridges were lackluster, as the uncertainty related to the unsigned multiyear federal transportation bill made it difficult to proceed with major projects. After the bill was signed in August, contracting for highways and bridges picked up, producing the moderate growth for the full year. Murray stated, "The public works sector should see further expansion in 2006, given the boost coming from the federal transportation bill now in place plus continued efforts to repair and upgrade infrastructure in the hurricane-damaged Gulf of Mexico region." Electric utility construction for the full year 2005 dropped an additional 5%, making it four straight years that this project type has weakened. The downward trend appears to be reaching an end, however, since the 5% drop in 2005 is much smaller than the 19% to 50% yearly declines reported during the 2002-2004 period.

The annual statistics for total construction in 2005 revealed growth in all five of the nation's major regions. Leading the way was the South Atlantic, up 13%; followed by the West, up 12%; the Northeast and South Central, each up 11%; and the Midwest, up 4%.