Many wondered if the U.S. commercial construction industry would ever recover from the darkest days of the recession, particularly in late 2009 and early 2010. Jones Lang LaSalle’s (JLL) 2013 Construction Outlook (PDF) finds that “Extreme Makeover” couldn’t be more appropriate for the commercial construction industry comparing 2009 to present. Just a few years after the recession brought the U.S. commercial construction sector to a standstill, the annual report paints a picture of a recovering, more diversified industry with less risk and revived funding.
“The construction industry has evolved significantly in the last five years,” said Todd Burns, President of JLL’s Project & Development Services group with responsibility for the Americas. “In particular, commercial construction is now characterized by an absence of overbuilding, coupled with a diverse focus that is less dependent on residential housing. Growth in sectors such as healthcare, retail, distribution and lodging has shaped a more stable industry in the long-term.”
By The Numbers
According to three key industry indicators, “cautious optimism” is the pervading sentiment among industry leaders in the fourth quarter of 2013. In August, the Dodge Momentum Index, which tracks projects in planning stages, surged 11.1 percent from the second quarter of 2013. Likewise, the American Institute of Architects (AIA) Architecture Billings Index – based on inquiries for new projects and construction spending – reached 52.7 and regained momentum lost during the first quarter of 2013. The Construction Backlog Index (CBI) also demonstrated steady improvement, rising to 8.2 months of contractor backlog.
Then & Now: Four Characteristics of the Post-Crisis Construction Industry
The Jones Lang LaSalle (JLL) Construction Outlook identified four trends helping – and hindering – construction growth in this new economic cycle:
1. Financing is Back
Then: A frenzy of overheated lending precipitated the real estate market and drove record construction starts, even as the global financial crisis emerged in 2008. By 2009, construction lending froze, as banks scrambled to reduce risks.
Now: Echoing the healthy activity in construction spending, commercial lending conditions are improving, even while lending standards have remained stagnant. The low cost of capital and re-emergence of the CMBS market have both enabled increased liquidity and easier lending. New CMBS issuance totals $50.8 billion so far through the beginning of August 2013, twice the level achieved through the first eight months of 2012. According to the Federal Reserve Board’s Commercial Lending Sentiment survey, 47.8 percent more respondents reported higher demand for commercial real estate loans in the third quarter of 2013 compared to the second quarter. This dwarfs the 23.4 percent response seen this time last year, and represents the biggest improvement in demand in more than a decade.
2. Construction has Become Expensive
Then: Building materials kept construction costs manageable before the crisis. High demand for new construction and free-flowing financing drove bulk purchases at lower prices.
Now: Construction costs are outpacing the recovery in most of the country. The booming single-family home sector has generated rising construction costs for the commercial sector as well, including driving up the cost of labor. According to Rider Levett Bucknall’s Construction Cost Index, which uses construction fees to derive a trend in overall construction costs, the cost of construction increased 3.6 percent this year. This compares to a 1.5 percent increase this time last year, and annual growth rates that barely eclipsed two percent in the last two years.
3. All Buildings are Green Buildings – the Best are Both Green and Smart
Then: Green building features were incorporated upon request, but were generally viewed as expensive and “nice to have” luxuries.
Now: Environmentally-sustainable features are viewed as table stakes by owners and developers, and attention to green building materials is considered a core competency.
LEED v4 formally launched this month and introduced new changes to enhance green building standards. Major new provisions in LEED v4 include expanding property type-specific designations, weighing points more heavily on optimizing energy performance, and a new “cradle to cradle” component. The cradle to cradle provision seeks to ensure that the products and resources used during construction are safe and designed for recycling or composting, and that the manufacturing process for construction materials manages its carbon footprint.
“Enhanced LEED certification is a competitive differentiator, particularly with any project driven by the Federal Government,” said Dermot Roe, Managing Director and National Construction Lead for JLL. “We anticipate that most projects will strive to be certified under LEED 2009 until 2015, when it will be phased out. Others may seek IgCC certification – it will be interesting to see these two standards collaborate and compete.”
4. Sandy, Stimulus and PPPs Shape Revenue
Then: Demand for construction came primarily from private-sector economic expansion.
Now: Much-needed infrastructure updates and rebuilding in the wake of severe storms are driving construction recovery in many geographies.
While infrastructure is clearly an issue facing the U.S., currently there are little funds available to states for new projects. As a result, public-private partnerships (PPPs) are emerging as a solution when public funding is limited. Natural disaster reconstruction remains “top of mind” for construction executives on the one-year anniversary of Superstorm Sandy, as climate analysts predict more frequent volatile storms in the future.
“While there is a steep learning curve associated with managing storm recovery and large-scale infrastructure projects now, construction firms who invest the time and resources to be successful in this sector will be well-positioned for growth in the future,” said Roe.
Jones Lang LaSalle’s Project and Development Services (PDS) group employs more than 1,000 project management professionals across the country with expertise in occupancy planning, relocation and build-out, multisite program management, ground-up construction and complex redevelopments. PDS professionals advise on project initiation, planning, design, construction and closeout for single assignments or multiple projects across a portfolio, functioning as a manager or at-risk developer, overseeing some or all phases of the development process. One of the world’s leading project management organizations serving commercial buildings, JLL has significant experience in office, hotel, retail, industrial and distribution centers, hospitals, universities, sports facilities, data centers and call centers.
For more news, videos and research resources on Jones Lang LaSalle, please visit the firm’s global media center web page: http://bit.ly/18P2tkv.
About Jones Lang LaSalle
Jones Lang LaSalle (NYSE:JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual revenue of $3.9 billion, Jones Lang LaSalle operates in 70 countries from more than 1,000 locations worldwide. On behalf of its clients, the firm provides management and real estate outsourcing services to a property portfolio of 2.6 billion square feet and completed $63 billion in sales, acquisitions and finance transactions in 2012. Its investment management business, LaSalle Investment Management, has $46.7 billion of real estate assets under management. For further information, visit www.jll.com.
Related Stories
| Apr 2, 2014
8 tips for avoiding thermal bridges in window applications
Aligning thermal breaks and applying air barriers are among the top design and installation tricks recommended by building enclosure experts.
| Apr 2, 2014
Check out the stunning research facility just named 2014 Lab of the Year [slideshow]
NREL's Energy Systems Integration Facility takes top honors in R&D Magazine's 48th annual lab design awards.
| Apr 1, 2014
The risks of mismatched fire-rated assemblies
Mismatched fire-rated glass and framing happens more often than you think. Failing to confirm that the tested and listed performance capabilities of the framing system match those of the glazing can create a financial nightmare for the entire building team.
| Apr 1, 2014
Planned global commerce center breaks ground near Phoenix
When completed, PhoenixMart will be one of the largest single-level trade centers in the U.S.
| Apr 1, 2014
Paints, coatings and sealants: Choosing products and procedures for best performance
This course covers life cycle assessment, color selection, emissions, durability, resilience, corrosion resistance, specification standards, and other critical aspects of choosing coatings for interior and exterior walls, ceilings, and roofs.
| Mar 31, 2014
Extreme conversion: Soaring Canadian church transformed into contemporary library
Even before the St. Denys-du-Plateau Church was converted into a library, it was an unusual building, with a towering nave designed to mimic a huge tent inflated by the wind.
| Mar 31, 2014
Tips for creating a competitive bid using codes and loads
Landing a project feels like winning a prize, sort of like finding that forgotten $20 bill in the pocket of a pair of jeans you haven’t worn in a while. But living on the “chance” of winning a job isn’t a great way to pay your electric bill. So, how do you swing the chances in your favor?
Sponsored | | Mar 30, 2014
Ontario Leisure Centre stays ahead of the curve with channel glass
The new Bradford West Gwillimbury Leisure Centre features a 1,400-sf serpentine channel glass wall that delivers dramatic visual appeal for its residents.
| Mar 28, 2014
Crazy commuting: British artist wants to construct 300-foot water slide on city street
Bristol-based artist Luke Jerram hopes that the temporary installation, once funded, will encourage the public to think about "how we want to use the city, and what sort of future we want to see.”
| Mar 27, 2014
Develop strategic thinkers throughout your firm
In study after study, strategic thinkers are found to be among the most highly effective leaders. But is there a way to encourage routine strategic thinking throughout an organization?