REITs Insight: Cranes Before Skyscrapers
I admit bird-watching isn’t one of my favorite pastimes. Of course I realize there are many beautiful species because I notice the geese elegantly swooping, and the mostly-pleasant melodies and chirpings in my neighborhood, and at the pond, and several lakes near home here in South Carolina. I also admit that the diligence applied by avid Audubon enthusiasts is very much similar to my unabashed fervor when watching the Commercial REIT investing space.
However, there is one bird that always gets my attention. I watch cranes very carefully. Construction cranes.
I’m not the only one. International property and construction consultancy Rider Levett Bucknall (RLB) has released their latest Crane Index® and Quarterly Cost Report. I wanted to share it with you for some insights into the North American construction industry. I think it informs REIT market awareness, and is a leading indicator for making intelligent investing choices.
The headline: a nearly 10% jump in tower cranes confirms the hot pace of urban building, with residential and mixed-use sectors leading the robust construction activity.
The details: the Crane Index® shows the national tower crane tally is climbing, with 423 cranes counted in July 2018, compared to 383 in January. And construction costs have increased nationally by 4.7% (annualized).
RLB North America President Julian Anderson, FRICS FAACE, said, “The increase in the net crane count indicates the construction industry is prospering, despite a tight labor market, rising interest rates, and materials tariffs. Our outlook for the industry through the end of the year remains positive.”
Other interesting highlights from these reports:
Portland: It’s one of the most dynamic markets in the U.S. with 30 active city cranes. Top sectors are mixed-use (15) and residential (8). Several key transit developments are now completed, and the city’s SW waterfront is booming. Some observers view the current housing market as over-supplied, and that infrastructure work will power the next wave of construction activity.
Top crane count cities: Toronto (97), Seattle (65), and Chicago (40)
Top three sectors by crane count (North America): Residential (44%), Mixed-use (26%), Commercial (12%)
Top three markets showing an increase in construction costs: San Francisco (6.93%), Portland (6.32%), Los Angeles (5.07%)
Markets showing a decline in construction costs: Honolulu (-1.06%)… the only city surveyed where construction costs have slipped
And: New York At a Glance: 20 cranes and 3.62% increase in construction costs
Let’s glance at the map.
Conor Flynn, Kimco CEO heads one of the largest publicly-traded REITs in North America, with 460 open air shopping centers, comprising 79 million sq. ft. of leasable space, primarily concentrated in the top major metropolitan markets.
His take: “In the top 20 metro markets, demand for high-quality locations continues to match or exceed supply as population and wages grow, and millennials begin to enter their peak spending years. These factors combine to present unique opportunities for mixed-use residential/retail projects and are a key component of our future growth profile.”
By the way, Kimco’s one of nearly two dozen select “Strong Buys” in my Forbes Real Estate Investor. We just published our latest monthly issue, this week.
An academic and industry view from Georgetown University Adjunct Professor Jonathan Morris, a long-time senior executive in the Real Estate industry. He teaches about REITs in the Master of Real Estate Program, and says, “The urban core of major metros continues to see heightened interest for both Office and Residential uses. This combination is reshaping every city to include a true “living downtown.”
About New York City he adds, “while it’s always been a 24-hour city, not every submarket was active. Now, that has changed dramatically as the population grows and young people invade the city in droves. A tower crane will be a common sight in virtually every submarket in Manhattan.”
The major industry group sees plenty of headroom. Nareit’s Research & Industry Information Senior VP Brad Case said, “Cranes are easy to count, but it’s easy to mistake what they mean.”
He points to the Federal government’s latest quarterly “value of construction put in place” (CPIP), measuring just 1.36 percent of GDP (in real terms). Historically for the sixteen years from Q1-93 through Q1-09, CPIP averaged 1.54 percent of GDP – and never once fell below 1.2 percent. Since the liquidity crisis it’s averaged just 1.05 percent and never climbed above 1.39 percent.
Brad Case says, “The fact that construction has been increasing is a great sign of the health of the overall economy, but we’re a long, long way from having too much construction.”
These numbers, counts, bullish takes – and crane sightings – keep me upbeat and on my toes, looking for the REIT champions for my readers. Keep your eyes, too, on the prize. And stay tuned…
Here are the links if you’d like to read RLB’s complete Crane Index & Quarterly Cost Report.
I own shares in KIM.