CHICAGO—US construction starts are expected to increase 3% for dollar volume of $765 billion in 2018, although building sectors related to commercial real estate will decelerate, Dodge Data & Analytics said Thursday. The firm's latest Construction Outlook report was presented at its 79th annual Outlook Executive Conference here.

While single-family residential starts are expected to grow 9% in dollar volume and 7% in units next year, multifamily will retreat 8% in dollars and 11% in units to 425,000, or half the projected number of single-family homes projected to launch construction in '18. Dodge says multifamily's strength appears to have peaked in 2016 and has begun to wane, given slight deterioration in market fundamentals and a more cautious tone sounded by lenders.

Dodge projects a 2% increase in commercial building next year, following a 3% gain this year and continuing a slowdown in growth after the 21% spike experienced in '16. Moreover, the gains will not occur across the board: while office and industrial both are expected to see further growth, store construction will remain weak, and hotel starts will continue pulling back from a peak reached last year.

“The US construction industry has moved into a mature stage of expansion,” Robert A. Murray, Dodge Data's chief economist, told conference attendees. Following annual increases between 11% and 13% from 2012 to 2015, the pace ebbed to 5% in '16 and a projected 4% for the current year.

Murray noted that while several project types, including multifamily and hotel, have seen pullbacks in construction starts this year, “the current year has seen continued growth by single-family housing, office buildings and warehouses. In addition, the institutional segment of nonresidential building has been quite strong, led especially by transportation terminal projects in combination with gains for schools and healthcare facilities.”

As for public works, Murray said, “the specifics of a $1-trillion infrastructure program by the Trump Administration have yet to materialize.” Accordingly, activity in the sector remains on “basically the plateau for construction starts reached a couple of years ago.”

In the coming year, we're likely to see some construction project types register gains “while other project types settle back,” Murray continued, adding that a number of positive factors support the contention that “the construction expansion has further room to proceed.”

Among these are continued moderate job growth and a gradual pace of any increases in long-term interest rates. And although market fundamentals for commercial real estate “won't be quite as strong as this year,” funding support for construction will continue to come from state and local bond measures.

Separately, the Associated General Contractors of America said Friday that employers in the construction industry added 11,000 jobs in October. The 6.93 million positions in the sector represented the industry's highest employment level since 2008. “While some of the job gain may reflect hurricane recovery work in Texas and Florida, recent spending and regional employment data show the job growth spans both residential and nonresidential projects, and is occurring in most states,” says AGC chief economist Ken Simonson.

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Construction Growth Expected to Taper in 2018

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