GlobeSt: Non-Residential Projects in Planning Return to Solid Recovery Pace
- Parkview Financial
- Oct 8, 2021
- 3 min read
Dodge Momentum Index gained 11% in September, overcoming summer materials pricing bumps.
Nonresidential building projects entering planning returned to their solid recovery pace from early 2021 after overcoming hurdles created in the summer created by higher material prices and shortages of labor and goods, which weighed on the construction sector, according to the Dodge Momentum Index released this week.
The Index gained 11% in September to 164.9 (2,000=100) from the revised August reading of 148. The Index, issued by Dodge Construction Network, is a monthly measure of the initial report for nonresidential building projects in planning, which have been shown to lead construction spending for nonresidential buildings by a full year.
The commercial planning component increased by 13% in September, while the institutional component rose 8%.
The strength in projects entering planning was widespread during the month, with most sectors moving higher. Excluding healthcare, which experienced a downshift in the dollar value of planning projects in recent months. On a year-over-year basis, the Momentum Index was 30% higher than September 2020; the commercial component was up 32%, while institutional planning was 25% higher.
Multifamily & Industrial ‘Never Really Slowed Down’
Bradley Ross Managing Director & Head of Originations, Parkview Financial, tells GlobeSt, “Multifamily and industrial never really slowed down and remain hot and in increasing number. New office development has slowed overall since pre-COVID. Retail demand appears consistent and was already out-of-favor in the capital markets prior to the pandemic.”
Ross said that there remains “a great unknown” with suburban and urban infill office markets. “We don’t know whether people will return to the office, work from home, or maintain a hybrid,” he said. “Some groups are making contrarian bets that things will return to normal, others are finding hospitality-to-multifamily or office-to-multifamily conversion opportunities in oversupplied markets such as multiple distressed office and hospitality developments in New York City, for example.”
He’s seen spec industrial development in major markets nationwide, and even some retail developments that make sense “given all of the new residential development occurring around the country,” he said.
Ross said the rise in lumber prices “absolutely slowed construction throughout the summer, and many projects were delayed as a result. Now that material costs have subsided, labor costs and availability of labor remain a constraint that is impacting developers.”
Ross said he also is seeing ground up, adaptive reuse, and conversion opportunities across the United States in the office, retail, and industrial sectors.
“Industrial continues to be the strongest amongst these asset classes, but there are very strong retail and office opportunities for creative developers, and we are seeing those deals with more regularity.”
He also pointed to increased office development and demand in life sciences, as well as media and content creation with tenants such as Netflix, etc.
“We have also seen an uptick in sound stages as an asset class,” Ross said. “The unknown lasting repercussions of the pandemic are creating opportunities for those who are not scared of the headlines.”
Looking Past Current Pricing Concerns
Dodge Construction Network reported that a total of 17 projects with a value of $100 million or more entered planning during September. The leading commercial projects were the $500 million “The Star” office building in Los Angeles and a $250 million office project in Cambridge, MA. The leading institutional projects were the first and third phases of a lab facility in Boston valued at $450 million and $225 million, respectively.
The gain in the Momentum Index and its components in September is certainly good news and a sign that owners and developers are looking past the current concerns over pricing, Delta variant, and politics and are moving forward with projects to meet demand, Dodge said in its release. “This does not mean there are no problems ahead for the sector; month-to-month volatility in the data is likely to remain for some time.”
GlobeSt.com
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