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Volume 20, Issue 4, March 5, 2010
On the Rise?
Statistics can only tell you so much
It’s been said that liars lie and liars use statistics to make whatever point it is they want to make. I’ll buy that! But, let’s not throw the baby out with the bathwater either, if you don’t mind. There’s lots going on here at DEC as we tool up for the next inevitable rise in the construction market. We’ve been your partner for more than 17 years and we are getting ready to change with the times; more on that in our next issue. Right now, I’d like to share some historical year-to-date numbers with you for 2008 through 2010.
Permits for the 25 county metro Atlanta area:
January first through
February 28th Y-T-D |
2008 |
2009 |
2010 |
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| Residential Permits |
2,777 |
1,126 |
1,156 |
| Commercial Permits |
2,092 |
1,083 |
617 |
On the face of it, pretty dismal, and you would not be far wrong. But, a little further analysis reveals something else. When we slice the numbers into monthly tallies, correct them for mean standard deviation, we see specific inflection points where it can be seen specifically where the numbers either began to slow down or speed up. For the first time in 26 months, we have seen the numbers for both commercial and residential permits gradually move to the right, meaning a slow recovery is now firmly entrenched and only subject to new news or factors that we can’t dial into the equation at the moment. Let’s talk about each market se-parately.
Residential construction is a function of several factors that we have talked about for months and won’t repeat in detail today. However, the fact is that job loss has slowed in general to pre-recession levels and over time businesses will have to rehire individuals after an almost unprecedented period of layoffs and downsizing. There are simply not enough people working today to support enterprise functions and to allow for growth. Much of the inventory overhang on the market has been trimmed to manageable levels and in some cases; shortages have developed at certain price points or geographic areas. Residential permits amounted to barely a trickle for the second half of last year and going into January of this year. We expect a continued rebound to bring new home construction up to between 1000-1500 new homes per month by late summer. While this is far below the numbers of the past, it is a vast improvement over 2009, and reflects the permanently changed landscape. As an aside, permanent in our business means perhaps five years! Another factor to keep in mind; Atlanta is still one of the top three markets in the United States for new home development, even today! Frankly, the underlying reasons we have had such good growth in the past, i.e. the sunny south, low cost of living, right to work laws and other facts are still applicable. Where are you going to go; Jersey? I don’t think so!
Commercial tanked 17 months after residential did. However, its drop was neither as precipitous or as deep as residential was. Asking the classic, chicken and egg question, does residential lead commercial in a recovery or is it the other way around? I have friends in the industry that are poles apart on this question and both make good arguments for their positions. I do know this though; we are seeing weekly commercial permit numbers of over 100 for the first time in a while and that bodes well. A rule of thumb has been that 70% of all construction in the state occurs in our 25 county coverage area. More recently, we believe that more construction was occurring outside the metro area percentage wise than in the past. Therefore, we can deduce that there are about 200 commercial projects starting in Georgia each week at present. This is down from approximately 550 commercial permits statewide about two years ago or about a 64% drop from our highs but more instructive, only down about 46% from our five year rolling average. Still very high, but not as bad as comparing year to year numbers.
We believe that increased commercial construction reflects confidence in the future. Be-cause there is a great deal of vacant office and retail space among several different kinds of property, we will have to absorb this cheap space first, which means there will be an ex-cess of additions, renovations and tenant finish work first, before we see a great deal of new construction return.
The glass is now officially half-full. It is up to all of us to make the best of the situation and prosper. Good Selling!
The Editor
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