Many of the leading U.S. commercial and multifamily markets experienced substantial gains in 2016 over 2015—aside from New York—according to new data from Dodge Data & Analytics. New York remains the top metropolitan commercial and multifamily market in 2016 by the dollar value of its construction starts, but its $29.8 billion construction value last year reflects a 15% drop from the $35.2 billion value of its construction starts in 2015, which itself was a 67% surge in growth from 2014.
Eight of the top 10 metro areas recorded double-digit percentage gains in commercial and multifamily construction during the same period, however, including the next four markets after New York. Los Angeles’ market grew by 44%, to $9.8 billion; Chicago’s by 34%, to $8.3 billion; Washington, D.C.’s, by 35%, to $8.1 billion; and Fort Worth, Texas’, by 16%, to $8.0 billion.
Nationwide, commercial and multifamily construction starts totaled $186.3 billion in 2016, up 7% from 2015.
Multifamily starts grew by 3% during this period—a much slower rate of growth compared with the market’s 22% rise in 2015. Dodge attributes this decline to last year’s multifamily market conditions in New York City, where multifamily starts fell by 28% following a 53% rise in 2015.
Given the imminent expiration of New York’s 421-a affordable housing tax incentive program in 2016, many developers moved up the start dates for their developments to 2015, accounting both for the rise in construction starts and the subsequent drop. (Renewal of the 421-a program was pending approval as of late 2016.)
Without considering the New York market, multifamily starts would have risen by 13% in 2016, about on pace with the corresponding 14% increase in 2015. (The New York market makes up 16% of all U.S. commercial and multifamily construction at present.)
Los Angeles experienced a 50% increase in multifamily start value during this period, and Chicago experienced an even greater jump, 82%, which was driven by two projects valued at over $500 million. Elsewhere, Washington, D.C., saw a 20% increase, and Dallas–Fort Worth experienced a 22% increase.
“Both commercial building and multifamily housing have benefited from a number of positive factors in recent years. These include declining vacancies, rising rents, low interest rates, and some easing of bank lending standards for commercial real estate loans,” said Robert A. Murray, chief economist for Dodge Data & Analytics, in a release.
“The geographically broader participation [in multifamily construction] by metropolitan area that emerged during 2016 is expected to continue this year, which should help the national total stay close to the elevated activity reported during 2015 and 2016. Other factors that could affect commercial and multifamily construction starts in 2017 would be two items proposed by the Trump administration—[a] reduction in business tax rates to spur investment and [an] easing of the Dodd–Frank regulations on the banking sector," said Murray.