Reed Construction Data (RCD) announced today that the year-to-date value of construction starts through October 2008, excluding residential contracts, totaled $242.7 billion, a 2.5% drop versus the first ten months of last year. Starts in the individual month of October were down 14% from September, much more than the usual seasonal decline, but were 11% higher than year-ago October.

This is the first post-credit-freeze starts report. It is hard to see the impact of the credit freeze in the starts total for October, but it is very clear in the month-to-month change in starts for private commercial properties that were expected to be hit first and hardest by the credit access and cost problems.

The value of construction starts each month is summarized from RCD’s database of all active construction projects in the United States, excluding single-family homes. Missing project values are estimated using RSMeans’ building cost models.

Construction starts for private offices, retail buildings, warehouses and hotels dropped 38% in October versus September, to the lowest total since early 2004, except for two seasonally-low winter months. Also, as expected, starts in the balance of the construction market show no impact as yet from the credit freeze.

The four private commercial markets accounted for 75% of the month-to-month decline in starts. The balance of the October decline was in manufacturing and nursing homes. These are also private markets that get construction funds from financial markets.

Value of United States Construction Starts — October 2008
(Reed Construction Data)

Source: Reed Construction Data (RCD) and Property & Portfolio Research (PPR) (www.ppr.info).
Table: Reed Construction Data – CanaData.

The worsened economic outlook stemming from the credit freeze will catch up with the rest of the construction markets. Already, tax receipts are abruptly lower, especially in states and cities dependent on income taxes. Also, the values of investment funds used to finance public and institutional construction have declined 20% to 30%. Construction cutbacks have been announced or soon will be announced by many facilities managers, which will depress starts by the end of this year and the early part of next year.

Heavy project starts rose 29% in October to a record high level, partly due to sharply higher material costs, but mostly due to insulation from short-term credit market developments. The credit freeze will reach this sector in a few more months but the impact will be less than for buildings.

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