US Construction Spending Hits New All-Time High in November - Sachse Construction
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US Construction Spending Hits New All-Time High in November

U.S. construction spending saw a month-over-month rise of 0.8% to a seasonally adjusted annual rate of $1.26 trillion in November, marking the fourth straight month of increases and setting a new high, according to a Yahoo! Finance analysis of Commerce Department data.

The uptick in spending was driven by a 1% monthly increase in the homebuilding sector, with a rise in single-family balancing out a slowdown in apartment construction, and a 0.9% month-to-month increase in the private nonresidential sector, a rebound attributed to a 5.5% surge in office construction.

In a separate analysis, the Associated Builders and Contractors (ABC) reported that total nonresidential construction spending increased 0.6% from October to November to a seasonally adjusted $719.2 billion, but fell 1.3% year over year. The ABC noted that construction in the nonresidential manufacturing and power segments fell by almost $22 billion in 2017 and that it’s possible lenders are wary of overbuilding in the hotel, office and commercial segments.

Office construction started out 2017 as the darling of the construction industry with major analysts projecting significant growth through the year. Dodge Data & Analytics predicted in its 2017 Dodge Construction Outlookthat office sector starts would grow 10% beyond those in 2016, adding about 110 million more square feet.

But last month, Moody’s reported that while the supply of office space will increase across the U.S. in 2018 by approximately 2%, demand is expected to shrink by 50% from 2017. Moody’s also expressed concern that lending standards had loosened up and that underwriting had become more aggressive — a pattern, the firm notes, that is typical when a sector enters the late stages of a cycle.

One area that should see increased activity through 2019, according to Cushman & Wakefield’s latest North American Industrial Forecast Report, is warehouse construction. Driven largely by e-commerce, Cushman & Wakefield predicts that the sector will see net absorption of 655 million square feet between 2017 and 2019, the second-highest mark behind the 2014-2016 time period. Along with the growth in demand should also come a 9.8% year-over-year uptick in rent, which is more than twice the rate of rent increases in the office sector.

Data center construction is also booming, thanks to companies ditching their own data operations in favor of colocation facilities where third-party providers host servers and provide the bandwidth, equipment and space. Curt Holcomb, executive vice president of data center solutions at real estate firm Jones Lang LaSalle’s (JLL) Dallas-area offices told Construction Dive in November that construction of colocation data centers is outpacing that of enterprise or single-company facilities, and that most Fortune 500 companies are now outsourcing their data needs.

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