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McGraw-Hill Construction Starts - Quarterly data
The Florida construction market reached a turning point in 2006 when the malaise in the local housing market morphed into a full-blown decline. Three key trends work against the Florida market: First, the housing market has shown little improvement in 2007. Second, population growth has slowed. Third, recent legislation to rollback taxes by 10% could, in the short-term, hamper state finances and curtail local government spending on education and public works.
Taken together, these factors make chances for a gain in Florida construction during 2007 remote. Construction starts are expected to fall for the second consecutive year, the first back-to-back declines since 1990, according to McGraw-Hill Construction Analytics, which like ENR is a unit of the McGraw-Hill Cos.
This year, the sustained weakness in single-family housing will be Florida's most notable story. The first nine months of 2007 gave no hint of a rebound and instead suggest that starts will be below 2006's level. On a dollar basis, the value of single-family housing starts is expected to fall 32% in 2007, following a 23% decline in 2006, says MHCA.
Growth for the multifamily side of the housing market in 2007 has been a bit shaker. Speculators who had hoped to cash in by "flipping" their pre-construction condominiums are now fleeing the market and the investor-driven bubble has all but vanished. This investor exodus has driven up availability (unsold units), and several years may pass before the excess inventory fades. As a result, MHCA predicts a 26% decline in the value of Florida's multifamily construction this year. An upturn in 2008 is unlikely.
On the plus side, Florida's commercial and industrial construction will enjoy another year of growth in 2007, with dollar value expected to rise 26%. Sectors to watch include hotels and manufacturing. Both are predicted to have triple-digit gains, according to MHCA.
Among the largest projects that have already contributed to these strong commercial markets are two hotels in Orlando – a $172-million Hilton Hotel and a $129-million Waldorf Astoria. The start of the $70-million Scripps Research Manufacturing Lab in Jupiter has boosted the manufacturing sector.
The Florida office market will remain incredibly active with starts rising 40% this year, according to MHCA. Fundamentals continue to improve and several of the major metropolitan areas have vacancies in the single digits. Miami's office vacancy rates, for example, sat at a mere 7.7% in the third quarter 2007, compared to 8.1% year ago.
Such strong underlying fundamentals contributed to a wave of new office projects entering the pipeline. Among the largest projects that started in 2007 are the $117-million Brickell Financial Center Offices and the $103-million Met 2 Office Tower, both in Miami.
Institutional construction by contrast will flatten in 2007 as education and airport terminal construction settle back from an extraordinary 2006. Education contracts will fall following an unprecedented surge last year.
Funding for construction projects is also becoming more squeezed as school districts report lower than expected enrollment levels and property tax revenue declines. While spending will remain at historically healthy levels in response to classroom size requirements, contracts will likely close the year 8% lower than 2006's historic peak.
On the nonbuilding side, the value of construction contracts will rise by a healthy 13%. The largest boost to nonbuilding construction will come from electric power and utilities, which could increase three-fold this year. Two substantial projects will contribute to the triple-digit gain: the $600-million, 1,100-MW West County Energy Center in Miami and an $80-million, NOx reduction project in Jacksonville.