Building Construction Recovery to Lag in Gulf and Rocky Mountain Regions

08/18/2010 by


California, Washington DC, New England, the Mid-Atlantic states excluding Pennsylvania, the Midwestern auto states and the Northern Plains states will have strongest recovery for building construction, excluding single family housing, according to the May Expansion Index from Reed Construction Data. The index also suggests no construction recovery in the next twelve months in the Gulf and Rocky mountain states and a relatively sluggish recovery in the South Atlantic states except for Florida.

The monthly expansion index is calculated from the Reed database of all construction projects in planning except single family housing. The index is the ratio of the value of building projects expected to start in the next twelve months to the value of building projects actually started in the previous twelve months. The list of approximately 25,000 projects in the planning phase is edited to include only projects far enough along in planning to be able to start within twelve months. Projects explicitly on hold or stalled at a pre-bid phase are excluded. Not all selected projects will start within twelve months.

The unweighted mean of the expansion index for all 360 metro areas is 1.88. This does not mean that starts will double in the next year. There is a substantial upward bias in the in index calculation process. However, this does not bias trends over time or comparisons between metro areas.

The accompanying table includes 109 metro areas with $500 Million or more starts possible in the next twelve months. Caution: many of these projects will be delayed and some will be cancelled. The Expansion Index website has an interactive map with the index value for all metro areas.

The relatively high values in the Northeast and California partly reflect the difficulty of obtaining permits. Permits are obtained earlier and often move very slowly to the bid stage.

The low index values in the relatively strong housing markets in Texas and the Carolinas confirm, as commercial real estate sources show, considerable surplus space from previous overbuilding.

Note that some smaller metro areas have a high index due to a small number of large projects. A large, once in a generation project, can push the expansion index in the smallest metro area to 20-50 which has a major impact for short period on local project costs. This appears to be the situation in the next year for the smaller cities with index values over 10.0.

Conversely, a relatively low index, suggests further declines in margins for local contractors and materials suppliers. Fifty two cities have an expansion index under 0.50. Most are very small cities. But this list includes some midsize cities such as Harrisburg, New Haven, Youngstown, Colorado Springs, Lancaster, Scranton and Chattanooga.

The geographical distribution of construction investment looks a lot like the distribution before the housing boom. The high growth is on both coasts with slower growth in the interior of the country. Currently the high growth region includes many Midwestern manufacturing cities but this is not likely to persist long. Only three small Rocky Mountain cities are among the 150 cities with the highest expansion indexes. There are no Texas cities.

Expansion Index — July 2010

Metro AreaIndex Expansion Metro AreaIndex Expansion
Holland-Grand Haven, MI38.48Cincinnati-Middletown, OH-KY-IN2.02
Stockton, CA32.52Hartford-West Hartford-East Hartford, CT1.96
Elkhart-Goshen, IN31.50Philadelphia-Camden-Wilmington, PA-NJ-DE-MD1.94
Niles-Benton Harbor, MI21.75Fort Wayne, IN1.86
Vineland-Millville-Bridgeton, NJ18.53Phoenix-Mesa-Scottsdale, AZ1.86
Rochester, MN17.62Charleston-North Charleston, SC1.80
Fargo, ND-MN14.08Louisville, KY-IN1.80
Syracuse, NY12.31Providence-New Bedford-Fall River, RI-MA1.76
Battle Creek, MI10.90Lincoln, NE1.73
Santa Rosa-Petaluma, CA9.22Orlando, FL1.73
San Francisco-Oakland-Fremont, CA9.22Boston-Cambridge-Quincy, MA-NH1.64
Columbia, MO9.14St. Louis, MO-IL1.50
Corpus Christi, TX8.24Fresno, CA1.47
San Luis Obispo-Paso Robles, CA7.62Richmond, VA1.41
Blacksburg-Christiansburg-Radford, VA7.46Baton Rouge, LA1.39
Napa, CA7.42Grand Rapids-Wyoming, MI1.39
Muskegon-Norton Shores, MI6.27Indianapolis, IN1.37
Springfield, MO6.19Omaha-Council Bluffs, NE-IA1.33
Poughkeepsie-Newburgh-Middletown, NY5.97Madison, WI1.33
Terre Haute, IN5.91Durham, NC1.32
Sarasota-Bradenton-Venice, FL5.55Duluth, MN-WI1.31
Memphis, TN-MS-AR5.36Columbia, SC1.31
Sacramento—Arden-Arcade—Roseville, CA4.60Tucson, AZ1.30
Lafayette, IN4.46Albuquerque, NM1.29
Detroit-Warren-Livonia, MI4.39Oklahoma City, OK1.29
Worcester, MA4.36Dayton, OH1.22
Manchester-Nashua, NH4.30Milwaukee-Waukesha-West Allis, WI1.21
Huntsville, AL3.74Salt Lake City, UT1.20
Bridgeport-Stamford-Norwalk, CT3.53Lexington-Fayette, KY1.20
Columbus, OH3.47Kansas City, MO-KS1.19
Wichita, KS3.42Portland-Vancouver-Beaverton, OR-WA1.17
Minneapolis-St. Paul-Bloomington, MN-WI3.28Yakima, WA1.15
Trenton-Ewing, NJ3.26Las Vegas-Paradise, NV1.14
Killeen-Temple-Fort Hood, TX3.05Denver-Aurora, CO1.09
Jackson, MS2.99Albany-Schenectady-Troy, NY1.09
Springfield, MA2.98Chicago-Naperville-Joliet, IL-IN-WI1.08
Baltimore-Towson, MD2.96Dallas-Fort Worth-Arlington, TX1.05
Akron, OH2.91Allentown-Bethlehem-Easton, PA-NJ1.01
Cleveland-Elyria-Mentor, OH2.91Seattle-Tacoma-Bellevue, WA0.98
Des Moines, IA2.81Virginia Beach-Norfolk-Newport News, VA-NC0.94
Modesto, CA2.71Honolulu, HI0.93
Tampa-St. Petersburg-Clearwater, FL2.71San Diego-Carlsbad-San Marcos, CA0.90
San Jose-Sunnyvale-Santa Clara, CA2.60Jacksonville, FL0.89
Augusta-Richmond County, GA-SC2.58Atlantic City, NJ0.81
Rochester, NY2.57Pittsburgh, PA0.81
Riverside-San Bernardino-Ontario, CA2.54Austin-Round Rock, TX0.79
Tulsa, OK2.45Raleigh-Cary, NC0.78
Cape Coral-Fort Myers, FL2.40Atlanta-Sandy Springs-Marietta, GA0.73
Washington-Arlington-Alexandria, DC-VA-MD-WV2.34Charlotte-Gastonia-Concord, NC-SC0.70
Miami-Fort Lauderdale-Miami Beach, FL2.32Houston-Baytown-Sugar Land, TX0.59
Portland-South Portland, ME2.28San Antonio, TX0.56
New York-Northern New Jersey-Long Island, NY-NJ-PA2.26Birmingham-Hoover, AL0.55
Buffalo-Niagara Falls, NY2.09New Orleans-Metairie-Kenner, LA0.53
Los Angeles-Long Beach-Santa Ana, CA2.07Nashville-Davidson—Murfreesboro, TN0.37
Gainesville, FL2.02Source: Reed Construction Data

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