Handy Reference Guide to Office Building Construction Starts, US and Canada – Daily Commercial News

This is the fourth article in a Handy Reference Guide series that has previously highlighted ConstructConnects construction starts statistics for roads, hospitals and educational projects.

This time it is office building work that is under the microscope with the accompanying table setting out results for all states in the U.S. and almost all the provinces of Canada. The findings for the four jurisdictions on Canadas East Coast Newfoundland and Labrador, Prince Edward Island, Nova Scotia and New Brunswick are combined in the Atlantic Region.

The left-hand side of the dividing line in the table sets out annual average volume levels for the six years from 2010 to 2015, as well as average annual percentage changes. The right-hand side shows results for the most recent year, 2016, both with respect to dollar volume levels and year-over-prior-year improvements (or deteriorations).

The volumes in the table are the summations of private offices and government offices. The former usually accounts for a larger percentage of the whole in the U.S., ranging from a low of just over 50% to a high of about 70% over the past seven years.

In Canada from 2010 to 2015, the private component of total offices recorded greater variability, swinging from 40% to 80%. Within the context of a poor economic climate north of the border in 2016, due largely to weak commodity prices, especially for oil the private-to-public split last year was an abnormal 33% to 67%.

The problem can be easily perceived when one considers the following circumstance. According to several major commercial real estate research firms, the office vacancy rate in Calgary home to the second highest (i.e., behind only Toronto) concentration of head offices in Canada has presently skyrocketed to 25.0%.

A figure of 10% is usually taken to be a good benchmark for when office supply and demand are in reasonable balance, although the yardstick for suburban space is almost always looser (i.e., plus 300-to-500 basis points, where 100 basis points = 1.00%) than for downtown cores.

Returning to the results in the table, total U.S. office building construction starts grew at an average annual rate of +5.9% during the six years from 2010 to 2015. In 2016, they more than doubled that pace, increasing to +14.3% year over year.

What about the geographical distribution of starts? On average from 2010 to 2015, the largest dollar volume of office building construction starts occurred in the South Region ($8.4 billion USD), although both the Northeast ($6.9 billion) and the West ($6.7 billion) stayed in the hunt for top spot. The Midwest ($3.6 billion) was a laggard relative to the frontrunners.

With respect to annual average percentage changes, the Northeast did best from 2010 to 2015, at +22.3%, with the West in second place, +11.0%. The Midwest (+4.2%) made minor headway, but the South (+0.3%) was caught in a standstill.

The South made amends in 2016. Its office building starts last year compared with 2015 were a marvelous +65.1%. Its dollar volume of office starts in 2016 ($13.7 billion) was almost double what was rung up by the region that was next best, the West ($7.0 billion).

The Midwest also had an outsized percentage gain in year-over-year office starts in 2016, +35.1%. The West, at -0.1%, stayed flat and the Northeast slipped by an amount approaching one-third, -29.9%. After a prolonged period of major project initiations in the City of New York (+88% per year on average, 2010 to 2015), office groundbreakings in the Big Apple took a big pause to regroup in 2016 (-60.5%).

Canadas total office building starts soared by +16.9% per annum, on average, from 2010 to 2015. But in 2016, they fell into retreat nation-wide, -41.6%. The rout last year was most severe in Alberta, -80.6%, although British Columbia which had managed to achieve a +42.1% performance on average from 2010 to 2015 also stumbled badly, -73.4%.

Two provinces achieved upticks in 2016 relative to 2015: Manitoba (+196.9% or a tripling of its office starts volume) and Ontario (+33.9%). The large percentage gain in Manitoba was mainly a mathematical anomaly. 2015s base level (i.e., as the standard for comparison) was so low as to be almost insignificant.

According to CBRE Research, Toronto currently has the tightest office vacancy rate in its core district, 4.4%. Vancouver and Winnipeg also have limited empty cubicle space, at 7.7% and 8.9% respectively.

Again as reported by CBRE, Oakland (4.1%), parts of Manhattan (6.3% to 9.3%), Austin (6.7%), San Francisco (6.9%), Boston (7.2%), Charlotte (8.2%), Seattle (8.4%) and Portland (also 8.4%) are the urban centers in the U.S. with the least room to wander around their downtown water coolers.

Table 1: ConstructConnect's Office (Private + Government) Construction Starts United States ($ volumes are in billions USD)

Canada ($ volumes are in billions CAD)

Data source: ConstructConnect Insight. Table: ConstructConnect.

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Handy Reference Guide to Office Building Construction Starts, US and Canada - Daily Commercial News