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New Construction Starts as of Aug’21

Construction Starts for August reported by Dodge.

Residential construction starts fell 9% in August, but that is after the previous 8 months of Residential starts were each higher than any other months ever recorded. The average of new residential starts for 2021 is 18% higher than the pre-pandemic high in Feb 2020 and 24% higher than the average for 2020..

The 4 highest months on record for residential construction starts are Mar (peak), Apr, May and Jun 2021, indicating spending should remain high at least through 2021. My current forecast has 2021 residential construction spending up 19% for the year.

Compare new construction starts for residential to new starts for nonresidential buildings. The current situation is like night and day.

Nonresidential Bldgs construction starts fell 13% in August. Compared to the pre-pandemic high (Feb 2020), May (+8%) and Jun (+1%) are the only two months higher. July was 2% lower, Aug 14% lower. The average for all 2020 finished 20% lower than the pre-pandemic high in Feb 2020. New 2021 starts avg is 9% below Feb 2020.

If monthly starts can recover to the pre-pandemic high of Feb 2020 from here on forward, then the low point of spending will be in the 3rd qtr 2021. Monthly spending still would not recover to pre-pandemic level until Jan 2023. However, we are currently not at a consistent recovery to pre-pandemic levels of new starts and the longer we remain below recovery level both dates would move out.

New starts in almost every Nonresidential Bldgs market are up for 2021, but some of that 2021 growth is off of such a low base in 2020, the combined current level is still quite low, far below the pre-pandemic highs. Compared to pre-pandemic starts, Mnfg is down -30%, Office -13%, Lodging -57%, Amuse/Rec -30%. Only Healthcare +5% and Public Bldgs +8% are up. The good news is total nonresidential buildings starts for the 4 months Apr’21 thru July’21 is now 52% higher than Apr’20 thru Jul’20.

Manufacturing was by far the worst performer in 2020, new starts in 2020 down 55%. Although Lodging gets a lot of attention because starts dropped 50% and spending reacted immediately by dropping -13% in 2020 and currently -30% for 2021, but that’s only for a total decline of $13 billion over two years. Manufacturing spending, for projects which have longer durations, fell $9 billion in 2020 and could drop another $12 billion over the next two years.

Manufacturing construction spending peaked between 2015 (all-time high of $83bil) and 2019 ($81bil). We won’t see spending like that again before 2025 unless new construction starts double and that is not in the forecast.

New manufacturing starts for 2021 are up more than 35% for 2021, but that 35% increase is from 2020’s 55% decline, an 8yr low, so 2021 is still lower than the previous 3 years. Manufacturing markets are improving, but off of an 8yr low, so it will take some time to get back to 2015-2018 values.

Warehouses is the biggest up story of all. Warehouses are included in the Commercial/Retail sector and represent now about 60% of the Comm/Rtl total $. In 2017-2019 that was only 40%-45%. Warehouse starts were up +25% in 2019, +14% in 2020 and are forecast +24% for 2021. Starts are also forecast up for 2022.

Some data on the Office sector: Starts in 2020 fell 20% from the 2019 high. Total office starts in 2021 are up 4%, but most of that is Data Centers ( up 15%). Office space starts are up less than 2%. In Q1 2021, 46% of all office starts was renovation. Office Vacancy rates reached as high as 16% to 17% in Q1 and Q2 2021, but are now back down to 12%. Pre-pandemic vacancy rate was 9%.

Included in the Office sector, Data Centers is about 15%-20% of the Office total. Starts fell 22% in 2019 and 23% in 2020. Starts are up 17% in 2021, but still 30% below the 2018 high.

Amusement/Rec spending in 2021 could finish down 15%, with new starts up only 3% to 4%, but that’s up from 2020 which was down 35%. Educational spending will be down 8% to 10% and new starts are down to flat.

Nonbuilding Infrastructure construction starts are up 1% in August. Compared to the pre-pandemic high (March 2020), August is up 2%. However, the 2020 average finished higher than the pre-pandemic level and every month since last August has been higher than March 2020. New 2021 Nonbuilding starts avg is 10% higher than March 2020.

The only non-building markets to show growth in 2020 starts were Highway/Street (+9%) and Sewer (+5%). Power posted the largest losses, down 38%. That represents a loss of $45 billion in construction that would have been spread over the next 3 to 5 years. Almost all nonbuilding markets will post gains in 2021. Non-building Infrastructure markets are usually not affected as much in a downturn because public funds are committed to these projects. Power shows most of the losses because it is 95% private work.

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