2016 could signal a cyclical peak in commercial construction

August 29, 2016 Sanjana Saluja

Construction starts saw a hearty boost this year, fueled by multifamily, office and lodging sectors. But analysts expect rates of new construction to taper off through 2020.

Private non-residential construction increased 7.0 percent year-over-year, according to research and ratings firm Moody’s Investor Service. Cincinnati-based construction data firm ConstructConnect, formerly CMD Group, meanwhile tabulated year-over-year growth of 8.1 percent across all commercial property types.

Low interest rates here and abroad, coupled with softened global economic conditions, mean foreign investors are increasingly looking to invest in new construction projects in the United States.

“Among the effects of this capital influx are extremely low cap rates associated with multiple product types, including office, multifamily and lodging. With the price of commercial real estate having been bid higher, construction activity has been triggered,” says Anbir Basu, chief economist for Associated Builders & Contractors, Inc., a national construction industry trade association.

"Generally speaking, the construction sector is gradually improving. But the sector has not revived to the degree expected to have on previous recovery,” says Alex Carrick, chief economist at ConstructConnect. “The whole sector is changing as we are seeing the effects of technology on building decisions.”

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