By | June 21, 2019

Steve Brown

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Construction activity in Texas and the U.S. is headed into a decline.

But don’t look for the kind of huge retreat we’ve seen at the end of previous cycles.

Building of projects including apartments and offices has already begun to slow in North Texas, said Robert Murray, chief economist at Dodge Data and Analytics.

"The forecast for Texas is after the pretty good-sized construction gains in 2017 and 2018 we are looking at a 2% decline this year," Murray said this week at Dodge’s midyear forecast session held in Irving.

He’s predicting that nationwide building activity in 2019 will be basically flat. And Dodge’s forecast for 2020 is a 4% construction decline.

"It’s not much of a pullback overall," Murray said. "We don’t have the imbalances present in past cycles.

"The extent of the decline that will take place will not be a replay of what happened in 2009" when the U.S. economy was in the Great Recession, he said.

Through the first four months of 2019, new construction starts in the D-FW area are down 3% from last year’s record levels, according to Dodge Data. All of North Texas’ building decline was in the residential sector.

Murray said in Texas and across the U.S. starts of single-family and multifamily homes have peaked.

"Over the last year single-family housing construction seems to have been stalled, probably due to affordability concerns," he said. "The first time homebuyers have not entered the market to the same extent we have seen in prior cyclical upturns."

Dodge is forecasting that the value of nationwide single-family home building will be down both in 2019 and 2020 by 3% each year. In Texas the forecast is for a 1% dip in single-family starts this year.

A bigger building decline is expected in the apartment sector. Dodge predicts U.S. multifamily home starts will fall 5% for this year and another 14% in 2020.

In Texas, the forecast is for a 17% drop in new multifamily building this year.

"We are seeing a slowdown and it is also taking place here in Texas," Murray said. "I think the banking sector is taking a more and more cautious view of loans for apartment development."

He said there are growing concerns of overbuilding of luxury, high-rise residential buildings in markets around the country.

Murray said overall nonresidential construction in the U.S. should remain fairly stable this year.

One construction sector that continues to boom in Texas and nationwide is the building of huge data centers.

Dodge Data estimates that last year a record $10 billion in U.S. data center construction projects were started.

And in Texas, some of the largest new building projects are data centers.

One of the biggest in the state is the $600 million Google data center in Midlothian southwest of Dallas which formally kicked off last week, Dodge Data says. Just the building for the Google facility costs more than $225 million, not counting all the equipment.

The largest construction project started in Texas so far in 2019 s a $400 million Microsoft data center and office complex in San Antonio, according to Dodge’s research.

Murray said new nationwide data center projects should total almost $12 billion in value this year. "Dallas-Fort Worth ranked fourth nationally in 2018 in terms of the dollar investment in new data centers, according to Dodge Data.

"There is a lot of data center work taking place in this particular market," Murray said.

The run up in construction costs that has plagued the industry in recent years may be moderating, he said.

"Construction and labor markets remain tight – that’s very much the case here in Texas," Murray said. "Material prices don’t see to be rising quite as fast as in 2018.

"Here in Texas the labor shortage is constraint," he said. "You are going to see a mild construction downturn in 2020 going into 2021 and that will ease some of the labor shortages."

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