On Friday, the Pittsburgh Business Times ran an article on construction activity in February that quoted Dodge Data & Analytics’ report that a mere $36 million in construction started in that month, The lede was that construction declined 88% year-over-year. (In the interest of full disclosure, I worked for what was formerly the F. W. Dodge Division of McGraw-Hill for 14 years at the beginning of my career.) Given the increased level of activity in the construction market since February 1, this headline and data seemed out of step with reality. I did a few minutes research and found that February was indeed down significantly compared to the same month in 2020, but the conclusion of the article was misleading. That’s not the Business Times’ fault. They are relying on data that is very inaccurate.
The construction market in Pittsburgh is rapidly picking up steam as spring begins. That’s a great indicator for 9-12 months out. The optimism and activity are better than what would have been unexpected just 90 days ago; however, the improved prospects for recovery will do little to improve the prospects for 2021. This year is going to be tougher financially than 2020 because the extreme slowdown in the second and third quarters of last year will be echoed in the first half of 2021. Construction businesses need data to manage 2021 so that they can be best positioned to take advantage of what should be a booming 2022. And bad data is worse than no data.
So here’s the data Tall Timber has from its research of building permits, construction reports, architects, owners, and contractors in the region:
|March 2021||$354.3 **||48.9%|
** Actual through March 26
The data in February 2020 was a good indication of the health of the market. Projects that were permitted or awarded that month included the $80 million Arsenal 201 apartments, a $5 million Behavioral Health Unit at Ohio Valley General Hospital, $25 million shell building for Krystal Biotech in Findlay Township, The $20 million airport micro-grid, $10 million Kraft Heinz research kitchen renovation, $12 million Heinz Field expansion for the Steelers Pro Shop, and a $16 million slag processing facility at Allegheny Ludlum’s Brackenridge facility. It was cross section of the economy. Of course, that was all about to change. The impact of the pandemic showed up almost immediately, as starts in March (typically a much busier month than February) fell off by 35.7%.
That March decline makes sense now, but at the time, such an immediate slowdown would have seemed unlikely. Bear in mind that our methodology for construction starts seeks to identify when work starts or is about to start. We are not tracking construction put in place, so the mandated shutdowns that followed the outbreak should not have influenced March’s start data. The preconstruction process is lengthy and I would have expected that starts would remain higher for a few months when a downturn began. Such was the jarring nature of COVID-19’s impact on the economy that projects were stopped in their tracks, even if they had already bid. Seeing that data by mid-April 2020 informed me that work was going to decline precipitously in 2020. At that point in time, my forecast for 2020 was for 30% lower start volume; but, as it worked out, the market held up better, falling “only” 17% year-over-year.
On the other side of the coin, the optimism that began to build when vaccines were announced in December 2020 has taken a few months to translate into construction starts. Like in February 2020, the work started over the past 30 days represents what the post-COVID economy may present: $60 million in new industrial properties, including Suncap’s and Northpointe’s developments of over 200,000 square feet; a handful of emerging tech fitouts, including multi-million expansions by Intervala at RIDC Westmoreland and Google at Bakery Square.
Construction companies feel good when their bid boards are full but analysis isn’t about feelings; it’s about data. Bidding is a predictor of activity to come. This coming year will see economic growth that comes in fits and starts. It is easier for executives to make decisions about opportunities if they are able to see February’s activity accurately measured, and the expected gains in March follow suit. Put in the context of the conclusions drawn by the author of the Business Times article, contractors that believe the market is slow because their activity is slow can make incorrect decisions about what and how to bid. The value of accurate data is that you can judge how you are doing against the market, rather than your own observations. To wit, if your company worked primarily in the office market, you might think there were few construction opportunities available in March, but there were plenty, just not in the office market.
I’m not familiar with Dodge’s methodology anymore, other than the fact that they don’t employ local reporters as they once did. Perhaps there will be a revision issued in April that shows the February data was higher or a much higher March that shows that the February data was just a timing issue. Regardless of whether the grossly understated February report changes, be careful about the data you use to measure the market in 2021. It will be a volatile and potentially active year. We already know that pricing is out of kilter, which could create a halting recovery from 2020’s malaise. Perhaps you are going to put your head down and hustle your way through 2021, but if you are the type of businessperson who wants to understand what the market is doing, be careful of the data you use. If it seems like the information isn’t matching your reality, look closer. This is not a year you want to miss the market.