Construction Starts Nationwide Hit 10-Month Low in November
By Rebecca Baird-Remba December 20, 2023 3:20 pm
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Skyrocketing interest rates and rising material costs have put a damper on all kinds of construction, with new construction starts hitting a new low for this year in November, according to data from Dodge Construction Network.
Construction starts fell 15 percent nationwide, from $1 trillion in October to $827 million in November, the report found. That dip was largely driven by a 29 percent month-over-month decline in nonresidential building starts, which reached a seasonally adjusted annual total of $345 billion from $485 billion in October. Industrial buildings felt it the most with a 74 percent drop in starts month-over-month. (Dodge did not track the dollar amounts for specific asset classes.)
The slowdown has reached the warehouse construction industry, which grew very quickly during a pandemic-fueled boom in e-commerce leasing but has seen investors cut back this year after pouring hundreds of millions of dollars, The Wall Street Journal reported.
Big e-commerce operations like Amazon are leasing much less space than they used to, and buying less property too, according to the WSJ. Even in New York City, which has long struggled with low industrial vacancy rates and high asking rents for warehouse space, demand for new industrial space has been declining.
“There’s been a lot of industrial development, and there’s not as many tenants in the market for Class A industrial space,” Ripco investment sales broker Stephen Preuss told Commercial Observer. “It was such a hot topic and there was so much capital influxing into industrial.
Everyone was building for Amazon, and they’ve halted a lot of their leases,” Preuss added. “It seems like ever since that happened a lot of these logistics or last-mile companies have followed suit.”
Commercial building starts fell 19 percent last month, with office buildings being the only category to see an increase in groundbreakings for new projects.
Healthcare projects drove a modest, 7 percent increase in institutional construction starts, with the $1.9 billion Children’s Hospital of Philadelphia Inpatient Tower in Philadelphia becoming the largest nonresidential project to break ground last month. The 26-story, 1.4-million-square-foot tower will hold 480 critical care beds and 20 diagnostic and intervention rooms when it’s complete in 2028, according to the hospital.
Meanwhile, residential building starts fell 6 percent in November, reaching an adjusted total of $359 billion, down from $382 billion the previous month.
New construction starts for apartment buildings fell 19 percent last month, just as rents have been declining in cities that have seen the most new residential construction, including Phoenix, Las Vegas, Austin, Texas, and other fast-growing cities throughout the south and southwest.
Single-family starts increased just 1 percent from October to November. Total, unadjusted residential construction starts were down 14 percent for the year to date to $335 billion, compared to $390 billion during the same period last year. Multifamily starts down 12 percent and single-family down 15 percent.
The largest multifamily project to kick off in November was Silverstein Properties and MetroLoft’s $220 million residential conversion of 55 Broad Street in the Financial District, followed closely by a similar, $200 million conversion of the The Superman Building in Providence, R.I.
“Construction starts are deeply feeling the impact of higher rates,” said Richard Branch, the chief economist for Dodge Construction Network. “While the Federal Reserve seems poised to start cutting rates in the New Year, the impact on starts will lag. As a result, starts are expected to be weak through the midpoint of 2024 before growth resumes.”
Rebecca Baird-Remba can be reached at rbairdremba@commercialobserver.com.
