Fundamentally Speaking: Construction Activity Rising Across U.S.

In the latest edition of Fundamentally Speaking, Calvin Schnure, NAREIT’s vice president for research and industry information, looked at the increase in commercial construction activity and its impact on the real estate market.

Schnure observed that an increase in commercial construction has been evident “across the board,” with third quarter commercial construction spending 16 percent higher than a year ago.

Construction activity is 30 percent higher than the year before in the multifamily sector, Schnure said. At the same time, office construction is 20 percent higher and lodging construction is 15 percent than a year ago. “We’re seeing strength in all sectors.”

Looking forward, Schnure addressed possible concerns that increased construction activity is leading to overbuilding. He noted that some pockets of weakness do exist, such as the Washington, D.C. apartment market. Nationwide, however, construction activity remains well below the historical norm.

“It’s too early to worry about overbuilding. Largely, that’s because you have to look at where we are versus where we’ve been,” he said.

While construction activity today is 50 percent above its low following the financial crisis, Schnure observed, “that doesn’t reflect a really big market right now as much as it reflects how weak we were in the trough,” he said.

Comparing the picture today over a longer historical horizon, construction activity is currently 20 to 30 percent below the trough that followed the 2001 recession, “so these are still low levels by any means,” Schnure added.