Twin Cities construction up 26% in February, thanks to housing

New construction spiked across the Twin Cities in February, led by residential building projects, according to a monthly report released Thursday by Dodge Data & Analytics.

Total building projects jumped 26% to $405 million for the 13-county metro area last month compared with a year ago. Residential construction led the activity, rising 33% to $336.9 million.

In contrast, building activity for offices, stores, warehouses, factories, schools, clinics and other nonresidential structures rose just 9% to $113.2 million in February.

"February's 9% gain in nonresidential construction vs. February 2020 was the result of an increase in activity in the transportation sector led by the start of a $32 million renovation at Minneapolis-Saint Paul International Airport," said Richard Branch, Dodge Data chief economist.

For January and February combined, total metro construction rose 6%, to activity valued at $1 billion. The housing sector generated most of those gains as home and apartment construction increased 21% to $816.8 million.

On the flip side, nonresidential construction starts for the first two months of 2021 were $228 million, "26% lower than the same period in 2020, with most categories showing significant declines," Branch noted. The key exception was transportation.

For the first two months of 2021, Dakota, Wright and Washington counties enjoyed the biggest construction gains, reporting double or triple the activity of a year ago. Counties experiencing slower activity included Ramsey County, (-60%), Pierce (-53%) and Hennepin, which saw its normally busy construction activity slump by 19%.

The others rounding the top five were apartment complexes where construction started in January. They included the $54 million Central Ave. Apartments in Columbia Heights, the $41 million Signal Hills Workforce Apartments in West St. Paul, the $32 million Nicols Apartments in Eagan and the $22 million Crossings at Inver Woods Apartments in Inver Grove Heights, according to the Dodge report.

Minnesota's commercial real estate sector has been impacted by the coronavirus, especially hotels, offices and retail stores. All have been hit hard by the pandemic as guests, shoppers and office workers avoided travel and crowded settings and began to work and shop remotely from home.

The trend sent existing office and retail vacancy rates soaring and postponed several new building projects.

Thursday's report suggested the sector may be rounding a corner, some developers said.

In January, Minneapolis-based Kraus-Anderson Construction started a $13.7 million remodeling of 110,000 square feet inside the Scott County Government and Justice Center in Shakopee. It also broke ground on a six-story, 220-unit apartment complex in St. Paul on University and Raymond avenues. That $45 million project, which is taking the place of a former U.S. Bank branch, is expected to finish construction in summer 2022.

Brent Lindstrom, vice president of special projects at Doran Cos., said the overall growth the Dodge report showed so early in the year goes against the practices of many small-property owners looking to break ground.

Firms like Doran avoid starting construction projects in winter, he said. "It just gets so expensive to break ground on a project when there is 2 feet of frozen ground and it is 20 below zero. So it's very common to have spring starts."

By June, Doran plans to break ground on four projects: a $2 million multitenant retail building in Maple Grove; a $3 million bank across the street in Maple Grove, and a $13 million apartment and townhouse complex in St. Paul. Lastly, Doran's plans call for a $23 million six-story apartment complex in Minneapolis with 112 units and underground parking.