Last year’s great oil price crash hit Texas hard--and the construction industry felt the effect. Greater Houston, America’s oil capital, weathered a 49% drop in construction starts as new activity in manufacturing plunged 97% from the year before. But 240 miles north, construction was on the rise in Dallas.
Thanks to its more diverse economy, the Dallas-Fort Worth-Arlington metro area welcomed $17.8 billion in new project starts in 2015, 19% more (in dollar terms) than the year before and $1.2 billion more than Houston. Dallas’ upswing and Houston’s fall have to do with the oil industry’s influence on each region: in Dallas it is relatively small, accounting for just 10% of the local economy, while in Houston it contributes about 40% of the economic pie, says Bill Gilmer, director of the Institute for Regional Forecasting at the University of Houston’s Bauer College of Business.
As the state’s financial center and a regional logistics hub, Dallas is more closely tied to national and regional economic factors than the price of crude. This independence shows in the numbers: last year greater Dallas added 98,900 jobs, while the Houston metro area added a total of 25,000 (after losing 40,000 in oil and gas manufacturing). That helped fuel Dallas' rises to the No. 2 spot on Forbes’ list of Building Boom Towns—metro areas with the most new construction. Houston, meanwhile, tumbles from the top to the No. 3 slot.
To compile our list of Building Boom Towns, the folks at Dodge Data sorted through building data for the nation’s largest Metropolitan Statistical Areas—major cities and their surrounding suburbs--to find the 20 places where the most money was spent on new construction in 2015. Our list tallies the dollar value of construction starts (breaking ground and actually beginning work) for single- and multi-family homes, office, retail, warehouses, healthcare facilities, educational buildings, manufacturing plants and research facilities, among others. We did not include money spent on public works projects such as bridges, streets and parks, nor on utility construction. Dodge Data defines a project’s total value as the cost to build a project at the time that construction begins, not including land value or the cost of acquisition.
Dallas is benefiting from a stronger national economy: one in which unemployment is down and wages finally rising, with construction a continued bright spot in the economic news. “Vacancy rates continue to decline, and we’re seeing continued increases in rents, which sets the stage for construction growth,” explains Robert Murray, Chief Economist and Vice President at Dodge Data & Analytics.
In 2015 construction spending for ongoing projects across the nation hit its highest annual level since 2008. Construction began on projects worth a total value of $469.5 billion, a 4% increase over 2014, according to Dodge Data. Last year’s growth came at a slower pace than the double-digit jumps of prior years: 2014 was up 16% annually to $453.4 billion; 2013 up 19% to $389.2 billion; and 2012 up 11% to $326.5 billion. The slowdown was due primarily to the non-residential sector, which dropped off 8%. The biggest culprit was a 39% decline in spending on manufacturing construction after an oil & gas boom in 2014. But starts in all categories of non-residential building—warehouses, office buildings, garages and service stations, dormitories, health-care facilities, public buildings, transportation terminals, and amusement and recreation--were down last year, with the exception of new stores, hotels, and religious buildings. Education building starts were barely up, by just 1%.
By contrast, spending on residential construction starts was up 14% in 2015, led by multi-family (an 18% annual increase) and with a strong showing for single-family (up 14%). “One of the positive elements about 2015 is that single-family housing picked up some momentum,” Murray notes. In four of the last five years multi-family starts have been strong relative to single-family (in 2014 they increased 32% and 3%, respectively). Last year’s strengthening in the single-family housing market is seen as a positive sign that people who lost their homes after the financial crisis might finally be recovering, and that young adults living with their parents might finally be moving out. Overall, residential construction showed more strength last year than in 2014, when starts were up just 10% year-over-year. But the numbers make clear that the most intense phase of the housing recovery (27% annual increase in residential starts in 2013, 31% in 2012) is well behind us.
Dallas, our No. 2 Boom Town, is tracking the national uptick in residential construction: $11.3 billion, or two-thirds of new construction spending in the greater metro, was for residential projects, primarily single-family homes. Notably, seven of the 20 biggest projects started last year in Dallas were mixed-use—meaning combinations of commercial space (whether hotel, retail, or in one case a parking garage) with residences. The costliest of these mixed-use projects was the $156 million, 25-story Victory Place apartments just north of Dallas, which will have 6,000 square feet of retail.
Greater Dallas also welcomed $6.5 billion in new construction starts on non-residential project. The greatest chunk of new spending (outside of new homes) was in new office buildings and educational facilities. But the area’s priciest single project came from a company headquartered 1,700 miles northwest, in California’s Silicon Valley: Facebook broke ground in Fort Worth on a $570 million new data center. The project underscores national realities driving businesses and employees to the Lone Star State: land is often cheaper in Texas—and that’s certainly true for Fort Worth compared to Silicon Valley. In addition to Facebook, greater Dallas last year welcomed the relocation of Toyota and Liberty Mutual Insurance (both to Plano), and State Farm Insurance (to Richardson). The metro area’s second-highest-priced project last year was a $307 million upgrade to the General Motors assembly plant in Arlington.
To be clear, our list tallies the dollar value of construction starts rather than ongoing projects as tracked by the Commerce Department. This is particularly important in the current context of Texas. Take a drive along Houston’s east side, and you’d have no idea construction starts were down, because some $50 billion in new construction of petrochemical plants, refineries, and natural gas liquefaction is loudly and visibly underway. The price of oil crashed in December 2015, but greater Houston’s population has still been growing, and the metro area is still building restaurants, hotels, and bars to serve them. Job growth has slowed, but the area has welcomed thousands of construction workers to build the projects that broke ground last year and in 2014.
“You can talk to most people in Houston and they will tell you they have seen no signs of an oil bust yet,” says Gilmer. “We’re still building a lot of catch-up stuff.” That despite the fact that 2015’s $16.7 billion in new construction starts for the area was just half of the $32.9 billion for 2015. Gilmer expects the local economy to slow further this year.
This year New York returns to the top of the Building Boom Towns List, with a whopping $46.6 billion in new construction starts. Building overall jumped 44% for greater New York (the New York-Northern New Jersey-Long Island, NY-NJ-PA metro area), with residential starts increasing 41% to $24.8 billion, likely boosted by an influx of foreign money and helped along by the impending end of a tax break for developers who agreed to put affordable units in their projects. In December, with the near-end of New York City’s 421a tax abatement program, the city issued four times as many permits for residential units as in November, the WSJ reports, and it’s likely more buildings broke ground last year before these tax breaks ended.
Non-residential starts jumped 48% to $21.7 billion for the greater metro, with much of that jump attributable to a single neighborhood. Three projects in Hudson Yards, the new neighborhood that billionaire Stephen Ross is erecting on Manhattan’s western edge, were among the costliest to break ground last year. The biggest was a $2.5 billion, 90-story office-retail tower, at 30 Hudson Yards, followed by a $1.1 billion, 67-story office and retail tower at 1 Manhattan West in the same development. The metro area’s priciest new residential project was also nearby: a $575 million apartment tower slated for 70 stories with 385 condominium and rental units at 15 Hudson Yards.
Texas is the state this year with the greatest number of Building Boom Towns, with Austin (No. 16) and San Antonio (20) joining Dallas (No. 2) and Houston (No. 3). Florida nabs three spots on the list with Miami (No. 7), Orlando (No. 14) and Tampa (No. 18). Los Angeles (No. 4) and San Francisco (No. 14) bring the Golden State two slots.
Check out our full list of Building Boom Towns in the slideshow above.
This year, Dodge expects total construction starts (including public works and utilities) to increase by 5%, with a 9% increase in nonresidential building and a 13% increase in residential building. For total building starts, which is what our Building Boom Town list tracks and does not include public works and utilities, Dodge is calling for an 11% increase overall.
