Construction Starts Plummet 15% In November, A 10-Month Low

Construction starts dropped 15% nationwide in November to the lowest level in 10 months, the latest example of the impact of high interest rates on commercial real estate. 

Dodge Construction Network reported nonresidential building starts fell the most, tumbling 29%, followed by residential starts dropping 6% and nonbuilding starts declining 2%.

The seasonally adjusted annual rate of nonresidential building starts is now $345B, a significant drop from $490B in October. That month was buoyed by large manufacturing plants getting going, Dodge reports. Otherwise, starts would have dropped 28% in October. Manufacturing starts took a 74% nosedive from October to November. 

Through November, total nonresidential starts in 2023 saw a 7% drop from 2022, and total residential starts were down by 14%.

Residential building starts amounted to a seasonally adjusted $359B in November, and nonbuilding construction starts totaled $223B. The latter category is the only one to have a positive year to date, with starts up 19% over 2022. There was a boom in utility construction, rising 49%, as well as increases in infrastructure and environmental public works starts, which were up 9% and 11%, respectively.

The dip in overall construction starts is largely another casualty of the high interest rates imposed by the Federal Reserve, and Dodge Chief Economist Richard Branch said groundbreakings are likely to continue easing until interest rates fall. In an effort to curb inflation, the Fed has been steadily increasing interest rates, impacting cap rates, borrowing rates and the cost of construction. Rates were raised 11 times between March 2022 and July 2023. 

The Fed last week decided to keep rates the same for now but hinted at the possibility of three rate cuts in 2024.