Construction of all kinds lagged significantly behind the activity in the first half of last year. Housing starts in Pittsburgh plunged 37.3 percent in the first half of 2014 compared to the same period in 2013. The drop in activity was driven by a significant drop in apartment starts coupled with a downturn in single-family permits that is attributable to weather and market conditions.

New home construction is still lagging the pent up demand for housing of all kinds. Some of the decline in starts can be explained by the severe winter, but much of the decline is due to the profile of the custom builder and the lot shortage in Metro Pittsburgh. The average builder is smaller here than most markets and it’s difficult for smaller builders to catch up when weather holds down buying for an extended period. More importantly, the dominant share of NVR’s Ryan/Heartland brands has made it very appealing to develop new lots for that juggernaut and unappealing to develop traditional neighborhoods that feature multiple custom builders.

Total residential starts fell to 1,813 during the first six months of 2014. Because several large multi-family projects got underway in the second quarter of 2013, the year-over-year comparison reflects a steeper decline than the Pittsburgh market might normally support. With another 2,000 units in the multi-family pipeline, permits for attached and multi-family units will still top 2,000 units for the full year, a total that is roughly 25 percent above the historical norm.

Demographics are really behind this part of the market. For as many apartments as have started since late 2012, leasing remains brisk, even accelerated compared to 2013.

Nonresidential contracts reached only $1.02 billion from January to June 2014, down 29.7percent from $1.45 billion during the same period in 2013. The pace of activity seems to be finally increasing, although the market is nothing like the boom of construction that took place after the last recession. Because of the cold winter and slow spring bidding, there is little expectation of a significant turnaround in 2014 but the pipeline is filling up with projects that bode well for 2015. Jobs like CMU’s Tepper School and the Cohon Center, the next phases of Bakery Square 2.0 or the Three Crossings are some examples of projects that will get underway in the next six months.

The big trigger will be the Shell cracker in Monaca, I believe. There are bigger industrial users looking for space now but the demand for manufacturing and industrial space will explode once plans for the site are announced. Jacobs Engineering took bids on some early packages over a week ago and confidence is still very high that work will go ahead by the end of this year on the preparation for the chemical processing facility, even if only to prepare it for Shell to sell to another producer. That prep work should be in the billion dollar neighborhood.

Buyers still outstrip sellers in the residential market but the first quarter totals for housing permits in metro Pittsburgh aren’t reflecting upward pressure on new construction, even with an increased number of new subdivisions coming on line.

Permits for new single-family detached homes totaled 409 from January through March in Allegheny, Beaver, Butler, Fayette, Washington and Westmoreland Counties. There were 228 units of attached and multi-family housing started during the same period. Most of those units were townhomes or other for sale property. Only 74 units of rental apartments got underway.

The brutal winter weather for construction made it difficult to generate new construction business; however, so it’s impossible to judge whether there has been an unexpected slowdown in the residential market or just a deferment of growing demand until spring and summer. My bet is definitely with the latter. The cold weather and snow kept traffic very light for all kinds of home shopping, according to the region’s leading realtors. Fewer home buyers toured new construction sites in winter 2014 compared to last year. Even those builders who reported having sales activity say that the construction for new contracts was delayed. More than 900 units of apartments are in for permit approvals in April so it’s possible that the catch up could occur by May or June.

Cold weather affected the start of nonresidential projects as well, but the impact was more muted. The nonresidential segment of the market is predominantly renovation work, so weather has less impact. In fact, for the first quarter of 2014 contracting rose slightly, up 2.5 percent to $491.2 million.

After a brisker March, bidding has fallen off steeply in April. The $29 million Freeport Middle School is out to bid, due May 9. Contractor PJ Dick will be bidding a couple of the projects it landed in 2013: the packages for the $34 million Eastside Transit Center and the new office 216,000 sq. ft. building at Bakery Square 2.0.

The Pittsburgh Regional Alliance held its annual “Winsday” luncheon March 26 and announced that the number of expansion or new business “wins” in 2013 rose 12% to 302. The PRA looks at capital expenditures and development that results in a new business starting or attracted to the region or an expansion. Within the various business sectors, manufacturing had the most wins, 65 compared to 59 in 2012. The information technology sector was second, with a leap to 51 wins vs. 33 in 2012.

There are a couple of big commercial real estate projects happening. Master developer Buncher Co. is looking to qualify apartment developers to handle the construction of the first residential portion of its riverfront project in the Strip District. The first 100 units or more will be developed at the 21^st Street access point to the site. Online retailer Amazon is reportedly looking for 250,000 sq. ft. for later in 2014. Amazon’s requirements will limit the number of opportunities available in Pittsburgh but the more interesting note about its entry into the market is the potential for growth. If Amazon grows its fulfillment/logistics needs as it has in other regions, a facility that is three or four times as large should be expected inside five years.

In the competitive bid market, one interesting project out this week is a major mechanical/electrical infrastructure project at Verizon’s Seventh Street office Downtown. The complete list of invited contractors and subcontractors on the roughly $20 million project is at the Builders Exchange but the generals invited are Allegheny, Burchick, Jendoco & Martini. Paragon Foods is taking design-build proposals for a $12 million cold storage warehouse in Lawrenceville.

UPMC selected PJ Dick as the contractor for the deconstruction of the old Childrens Hospital. PJ was also reportedly selected as CM for the Tepper School but Carnegie Mellon has made no announcement.

This was a slower week in the news but according to estimators around the region, bidding remains brisk. Interviews are today for the CM role for the new Tepper Business School at CMU. Carlow is taking proposals for a +/- $12 million expansion from Jendoco, Martini, Mascaro, Massaro and PJ Dick. Excela has requested design/build proposals from Martini and MBM for a renovation at Frick Hospital to create a medical mall-type space simi.ar to the $8 million Excela Square.

This morning’s Post-Gazette has a story about Shell’s continued efforts to focus its capital expenditures. The article implies that the efforts make the ethane cracker decision less certain but offers little support for the theory. The basis of the story seems to be Shell’s CEO comments about the company. Shell is publicly traded so you have to read any public CEO’s comments through that prism. The concern he expressed was about their dry gas assets in the Marcellus. The ethane supply for the cracker has been proven from the wet gas deposits here in western PA and the Utica Shale formation, which is very accessible in Beaver and Lawrence Counties. There’s still plenty of wiggle room for Shell to opt out or defer but the activity – particularly the assemblage of adjacent properties that have been purchased by the energy giant – suggests that dirt will be moving this year.