Commercial and Residential Construction Starts Expected to Rise

The years 2011 through early 2015 saw commercial property markets that were very strong in a handful of markets, such as Houston, Texas and the Silicon Valley, while rent prices and construction has picked up globally from the depths of the recession. For the fourth quarter of 2015, analysts at CBRE reported that commercial real estate across America had vacancy rates of 13.2%, compared to 13.9% for the same quarter in 2014 and down from 16.9% in the fourth quarter of 2013. Average asking rents rose in the 2015 third quarter to $29.36 per square foot, up 4.8% from the same quarter in 2014.

Commercial markets continue to show signs of a good rebound. CBRE reported that construction completions reached 35.7 million sq. ft. in 2015, the highest total since 2009 but still less than half of the previous 2008 peak of 75.9 million sq. ft. Of the 57 markets tracked by CBRE Research, 11 had no construction underway at year-end, down from 16 markets one year earlier.

On the residential side, the construction market has improved as well. 2011 saw 302,000 new single family home sales, according to the Bureau of the Census, which rose to 501,000 in 2015. The value of private residential U.S. construction put into place was $280.3 billion in 2012, rising to $349.9 billion in 2015. For 2016, $447.9 billion is expected.

Residential construction in the U.S. is expected to improve significantly in 2016 thanks to continued job growth, better consumer confidence and rising incomes. The U.S. Department of Commerce and the Department of Housing and Urban Development (HUD) reported housing starts up 10.8% in 2015 to reach 1.11 million units. According to the National Association of Home Builders, the average new home size rose to 2,720 square feet in 2015, up from 2,660 square feet in 2014.

However, affordability has become a real issue for first-time homebuyers. Texas-based home builder D.R. Horton, Inc. launched a new division in early 2014 called Express Homes to build smaller, cheaper houses to attract first time buyers and other budget conscious buyers who have previously been priced out of the new home market. The Express Homes division of D.R. Horton offers small, no-frills units in four U.S. states with prices ranging from $120,000 to $150,000, considerably less than the company’s overall average price of $278,900.

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