Top Project Starts: Midwest Construction Activity Neither Advancing Nor Retreating
It was billed as a year of recovery, but 2011 proved anything but for the construction industry in the Midwest and elsewhere.
It's not that owners and investors retreated. They simply didn't advance. As a result, the year ended much as it began, with the value of U.S. construction totaling $787.4 billion, about 2% below the $803 billion spent in 2010.
Economists predicted growth in the latter half of the year but by summer were revising their forecasts due to poor economic growth, rising food and fuel prices, Europe's financial crisis and volatility in U.S. financial markets, all of which conspired to remove riskier deals from the table, according to Anirban Basu, chief economist with Washington, D.C.-based Associated Builders and Contractors.
'A Degree of Stalling'
By year-end, construction backlogs declined in several sectors, including commercial, industrial, institutional and infrastructure, denoting "a degree of stalling in the recovery of the nation's nonresidential construction industry," Basu noted in February upon release of an ABC study indicating a 3.2% slide in average backlogs nationwide in the final quarter of 2011.
Backlogs in the middle states, including Ohio, Indiana, Illinois, Wisconsin and Missouri, rose to 6.53 months for the same period from 6.22, putting the region roughly on par with Western states, but well behind the Northeast and Southern regions, whose backlogs for the fourth quarter averaged 7.99 months and 8.92 months, respectively.
"Disparity among regions is on the rise," says Basu. "The South appears to be the region most positively impacted by rebounding nonresidential construction, largely due to its central importance to the nation's energy industry."
The seeds of a Midwest recovery eventually may be sown by projects that are by-products of a struggling economy, as evidenced by three Ohio casinos that broke ground last year after voters confronting 10.8% unemployment approved gaming facilities for Cleveland, Columbus, Cincinnati and Toledo. The combined value of casinos currently under way in Columbus, Cincinnati and Cleveland is in excess of $1 billion, sufficient to place each among the region's top five construction starts in 2011.
Likewise, home foreclosures and attendant demand for apartment dwellings have jump-started multifamily construction in the Midwest and other regions, prompting Bank of America Corp. to forecast a 45% jump in apartment and townhouse construction in 2012. Moody's Analytics forecasts a 74% gain, to 310,000 units.
In downtown Chicago, no fewer than 20 apartment projects are in various phases of development, design or construction. Assuming all are completed, the projects would add nearly 7,000 units to existing inventory. Four currently under construction—Optima Center, The Coast at Lakeshore East, 500 Lake Shore Drive and the K2 Apartment Tower—are collectively valued at more than $475 million, placing each among the region's top projects for 2011.