Nonresidential-Building Surge Holds Total Construction Starts Steady

March construction starts show strength in data-center construction while housing and nonbuilding construction slide

"New construction starts in March came in at . . . essentially the same pace as February," McGraw-Hill Construction (MHC) reported on Wednesday, based on data it compiled. "While total construction was unchanged from the prior month, this steady pattern came as the result of divergent behavior by construction's three main sectors. Nonresidential building in March increased sharply, following its subdued activity earlier this year, but declines were registered by housing and nonbuilding construction (public works and electric utilities). Through the first three months of 2011, total construction on an unadjusted basis was . . . down 10% from the same period a year ago."

Robert Murray, MHC's vice president of economic affairs, commented, "Public works had initially offset some of the weakness shown by other types of construction, but it's now beginning to lose momentum, given waning support from the federal stimulus act, tight state budgets, and cutbacks in federal funding included in the recently approved fiscal 2011 appropriations. While multifamily housing has strengthened in hesitant fashion, single-family housing continues to be stalled. For nonresidential building, there's still the downward pull coming from the institutional categories, but on the plus side commercial building seems to have already reached bottom, and the gains for commercial building in March would appear to be a positive development going forward. The note of caution for commercial building is that market fundamentals such as occupancies have only just begun to improve, and banks remain very cautious with regard to lending for new projects."

One construction category that appears to be hot is data centers. "Rick Einhorn, director of worldwide critical facilities service at [Hewlett-Packard,] anticipates that 50% of all new data centers will be built modularly, rather than custom designs, by 2013," the Wall Street Journal reported on Tuesday. "The amount of commercial data-center capacity becoming available, which grew 5% in 2010, is projected to hit double-digit growth rates, up to 11% growth in 2014, according to Tier 1 Research . . . 'The need now [for new centers] is outstripping the ability of custom to meet it,' said George Slessman, chief executive of i/o Data Centers LLC, a Phoenix-based builder of data centers." MHC counts data centers in office construction, "which surged 87% in March, lifted by the start of a $1.1 billion data center in Utah for the National Security Agency…and a $75 million data center in Santa Clara, California."