Washoe County Commercial Building Permit Trends

Our most recent industry index for the construction industry in the Reno MSA showed that while the index increased slightly between December 2015 and January 2016 (0.35%), it actually decreased by 5.31% compared to January of previous year.[1]  Historical graph for the construction index is shown below, showing the index declined since July 2015 with a slight increase in January 2016.

constr graph

The major reason for this decline, as shown in the table below for January 2016 is a decline in the number of commercial building permits between December 2015 and January 2016.  Both the number of commercial building permits and commercial permit valuation declined between January 2015 and 2016.

const table

The graph below shows Washoe County’s number of commercial permits issued and the value of these permits.  The data is the graph is monthly moving average (MMA) data, which means that for each month, the data is the average of that month and the 11 previous months.  Based on MMA data, the graph shows a peak in commercial building permits and permit valuation in July 2015 (consistent with the index) before falling through January 2016.  Commercial building permit data has been released for all three jurisdictions (Reno, Sparks, and Washoe County) for February 2016 showing a total of 13 building permits issued and valuation of $11.0 million.  This is greater than in terms of the number of building permits of 9 in January 2016, but lower in value compared to $15.1 million.  March 2016 commercial permit data has been released for the City of Reno only, showing 26 building permits valued at $15.2 million.  As a result, March 2016 will exceed both January and February permits data.

Comm.jpg

While of some concern, the decline in the number of commercial permits needs to be considered in its historical context.  Permit data for 2014 was at the highest level since 2008, just before the full impact of the recession in the region.  There were 240 commercial permits valued at $365.4 million issued in 2014.  In 2015, 196 permits were issued with a value of $231.9 million, representing another strong year of activity, but lower than 2014.

The total number of permits in January and February 2015 of 34 was higher than the 22 permits issued in the first two months of 2016.  However, the valuation of these permits in the first two months of 2015 was $20.5 million compared to $26.1 million in 2016.  As a result, while our late 2015 and 2016 commercial permit levels have been lower than the stellar commercial permit year we had in 2014, these levels are still the highest commercial permit activity the region experienced since 2009.  If March 2016 City of Reno activity is any indication, this activity will continue to improve.

On the residential construction front, single family permits continue their increase since the bottom in 2010-2011, with permit activity increasing in terms of both the number of permits and value of permits issued, as shown below on an MMA basis.

SF

Multi-family permit activity spiked in 2015, before declining to permit valuation levels seen during the real estate boom.  The decline in the number of permits issued is attributed to normal construction cycles of the large number of multi-family projects approved and planned for the area, not because of lack of demand for these projects.

MF.jpg

[1] Please find our economic and industry indices on our website: http://ekayconsultants.com/research.

EEC’s Industry Dynamics Reports-Construction

In addition to the Leading Economic Index for the overall Reno MSA economy, we are introducing three specialized indices: Construction, Business Activity, and Single-Family Housing.  These are areas that drive the Reno MSA economy and deserve special attention.  These indices, along with a discussion of index trends, will be updated quarterly as part of our Industry Dynamics Reports.

This week, we are introducing the Construction Index for the Reno MSA.  The full Construction Dynamics Report can be found on our website by following the link provided below.  Some of the findings of the index for 3Q 2015 are summarized below:

-Reno MSA Construction Index, based on seasonally and inflation-adjusted data, decreased by 7.63% between the 2Q and 3Q 2015, indicating a decline in construction activities in the region.

-However, year-over-year, the Index grew by 11.99% for 3Q 2014 and 2015.

-Prior to the recent decline, the Index experienced 11-quarters of growth between 3Q 2012 and 1Q 2015.

Clink here for the full copy of the Construction Dynamics Report-Reno MSA for January 2016.

 

Signs of Recovery: Washoe County Building Permits Are On the Rise

Even before Tesla announced it will build a giga-factory in Storey County, creating as many as 6,500 direct jobs and possibly 16,000 indirect jobs (according to a report by the Governor’s Office for Economic Development), Washoe County’s real estate market was showing signs of recovery.  One of the biggest indicators of growth in the real estate market is the number and valuation of building permits in the area.  Building permits are required to construct new buildings and to make certain improvements to existing properties.

These permits are issued by local governments prior to construction and are a good leading indicator of actual construction to take place in the future.  Washoe County’s growth in building permits since the recession is a good sign of the region’s economic recovery.

Single family permits in Washoe County peaked in 2005 with 5,535 permits and a permit valuation of $957.7 million.[1]  As the graph below shows, the number of permits and valuation declined significantly for all areas of Washoe County (Reno, Sparks, and unincorporated Washoe County which includes Incline Village, Sun Valley, Wadsworth, etc.).  The number of permits hit its lowest level in 2010 with 477 permits issued, a 91% decrease in the number of permits over 2005.

Building permits increased by 156% between 2010 and 2013 (the last full year for which data is available), from 477 to 1,221 permits.  Building permit data for 2014 is available through September only; using historical growth in permits between October and December, we estimate approximately 1,450 building permits will be issued in 2014.  This is a 19% increase over 2013.  Building permit valuation followed a similar trend to the number of issued permits.  While the 1,450 permits expected for 2014 is much lower than the peak of 5,535 in 2005 or even the years prior to the real estate boom, four years of growth since 2010 indicate a positive trend for this real estate market component.

 sf permits*2014 data through September 2014 only, full year data is estimated using historical end of year percentages.

While the single family market saw a strong positive growth trend through 2005, followed by a steep decline through 2010, and some recovery to date, the multi-family’s market’s path was a little more varied.  This is due to the less consistent nature of the multi-family market, where large projects in some years can shift trends significantly.  While the number of single family permits grew, multi-family permits dipped in 2003, before reaching the peak of 146 permits in 2004.  Building permit valuation did not peak until 2006 with a value of $103.3 million.

Like the single family market, building permits for multi-family units declined through the recession, though the bottom of the market was not reached until 2011 with only two permits issued in that year.  This was an almost 99% decrease in the number of permits issued over 2004.

The number of building permits issued for multi-family projects showed a consistent positive growth trend since 2011, with approximately 71 building permits estimated through 2014, an over 3,000% increase over 2011.  Building permit valuation is expected to reach $79.3 million in 2014.  While still below peak levels, the market has shown three years of significant positive growth, indicative of recovery.

mf permits*2014 data through September 2014 only, full year data is estimated using historical end of year percentages.

As with the multi-family market, large commercial projects in certain years can skew the market trend, making growth and decline trends less smooth.  However, overall, a trend similar to single family and multi-family markets is shown by the commercial market.  The number of commercial permits issued peaked in 2006 with a total of 457 permits with a value of $509.2 million.  Commercial permits did not hit bottom until 2010 when 99 permits were issued with a value of $53.4 million, a 78% decline in the number of permits over 2006.  Permit valuation decreased further in 2012 to $44.7 million, though a higher number of permits (140) were issued in that year.

The number of commercial building permits issued increased steadily since 2010, with approximately 242 permits estimated for 2014 with a value of $290.1 million.  This is a 144% increase in building permits since 2010.  While this amount is still below the peak number of building permits issued in 2006, the commercial market has experienced positive growth for four consecutive years, indicating a recovery in this market.

 comm permits*2014 data through September 2014 only, full year data is estimated using historical end of year percentages.

Overall, the steady growth in building permits and permit valuation in all three components of the real estate market show the increasing confidence by builders in the recovering economy and the increases in demand for new construction from residential and commercial buyers and lessees.  The growth in the number of building permits can be seen in the remainder of the real estate market.  Construction employment in Washoe County increased by 16% between 2011 and 2014 (1st Quarter) from 8,697 to 10,125.[2]  Median single family home prices also increased from $145,000 in the 1st Quarter 2012 (lowest price through recession) to $248,000 in 3rd Quarter 2014, an increase of 71%.[3]  While it is unlikely pre-recession, boom, construction levels will be reached in the near future, the market is recovering steadily, to the benefit of the region’s economy.

[1] All building permit data in this blog from City of Reno, City of Sparks, and Washoe County websites.

[2] Nevada Department of Employment, Training, and Rehabilitation.

[3] Center for Regional Studies, University of Nevada, Reno.