Office construction is hovering at much lower levels amid a glut of office vacancies.
By Wolf Richter for WOLF STREET.
Construction spending — both residential and nonresidential — in August hit a record $165.5 billion (not seasonally adjusted), according to Census Bureau estimates today. Seasonally, construction spending peaks at this time of year.
Compared to August 2021, total construction spending increased by 8.8%. Compared to August 2019, its expenses increased by 25.8%. Construction expenditure is not adjusted for price variations; it reflects the actual amounts spent each month.
The Census Bureau also provides a “seasonally adjusted annual rate” of total construction spending – what the whole year would look like based on the amounts spent in August. This seasonally adjusted annual rate fell 0.7% from July to $1.78 trillion, up 8.5% from a year ago. These seasonally adjusted annual rates usually appear in headlines. But I’ll stick to actual monthly dollars here.
Residential construction — single-family homes and multi-family buildings, as well as improvements to residential structures — were unchanged in August from July, at $86.1 billion.
But that’s up 12.2% from August 2021 and a whopping 63.9% from August 2019, following a huge construction boom that sent building material prices skyrocketing. :
Single-Family vs. Multi-Family Construction: In terms of seasonally adjusted annual rates of residential construction, the rate of spending on single-family homes fell for the fifth straight month as builders reduced spending to deal with their glut of homes in inventory. But multi-family construction ticked.
But in the multifamily construction segment, the seasonally adjusted annual rate of spending rose in August and has remained roughly flat at very high levels for the past five months.
Non-residential construction — covering everything from offices and power plants to highways — reached a record $79.4 billion in August, surpassing the previous record of August 2019. That was up 5.2% from August 2021 and by 0.4% compared to August 2019, which had been the previous record.
Office building – a small portion of non-residential construction – also advanced during the month. But that sector has been languishing since working from home became big business in mid-2020, causing vast amounts of vacant office space to appear on the market across the United States. It’s still unclear why anyone would be planning another office tower now, with this kind of office glut, but current construction spending largely reflects projects that were planned years ago.
At $7.5 billion in August, spending on office construction was down 0.8% from August 2021 and 9.4% from the peak in August 2019. This segment will continue to decline as that the industry will figure out how to approach the new office environment:
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