The new Trump Administration’s aggressive policies, particularly on international trade and immigration reform, could, if executed as planned, “greatly affect” how America’s construction industry does business this year and beyond.
In its Q4 2016 Construction Outlook, which it released earlier this week, JLL also continued to see construction labor as a “pain point” for the industry that will cause wages to rise and impact project timelines and budgets. And materials costs, which for the most part stabilized in the latter months of 2016, should hold steady if, as expected, construction activity slows this year.
Twenty-sixteen was a banner year for construction spending. Led by the hotel and office sectors, spending increased over the previous year by 4.5% to $1.2 trillion. That rate of growth was nearly triple the GDP inflation rate.
Nationally, the construction and contractor backlog in Q4 2016 stood at 8.7 months of future work across all sectors, up 2.2 percent from the fourth quarter 2015 and tracking closely with national trends. The Midwest in particular enjoyed sizable year-over-year growth that quarter, while work in the South remains steady. The Northeast and West regions continued to slip, each well below 2015 levels.
Not surprisingly, construction costs are rising faster in metros where construction activity has been robust, but also where labor is in shorter supply. Image: JLL Research
Building costs rose nationally by a modest 2.7%, with nearly half of that increase occurring in the fourth quarter, spurred by strong residential construction that drove demand, and uncertainly surrounding the effects of the Trump presidency.
JLL doesn’t expect the manifestations of policy decisions coming out of Washington to intervene on the construction industry until later this year. But JLL’s forecast strikes a cautionary pose about the prospects of “voided international trade deals and new import tariffs [that] could drive up materials costs faster.”
And at a time when construction unemployment continues to fall—last week, AGC America reported that from January 2016 to January 2017 construction employment rose in 39 states and in 216 of 358 metro areas—immigration reform “could shrink the skilled labor supply and spur further wage increases,” says JLL’s report. Large-scale infrastructure projects will create a premium on materials and workforce in specific markets such as Oakland and San Francisco, Chicago, and New York.
Inflation in materials costs is harder to gauge when trade agreements are in flux. The largest price swings in 4Q 2016 were seen on the cement and lumber fronts: cement costs were down 4.7% compared to the same time last year, while lumber was priced 9%-plus higher. Steel, on the other hand, maintained negligible price changes, not even breaking one-tenth of a percentage point over third-quarter prices.
One barometer worth keeping an eye on is the IHS Markit PEG Engineering and Construction Cost Index, which tracks procurement activity among engineering and construction firms. In March, that Index registered its fifth consecutive month of rising prices.
Eight of 12 materials/equipment categories tracked showed rising prices in March. And the six-month expectation index stayed positive, although materials and equipment prices are projected to rise at a slower pace than subcontractor labor.
Related Stories
Market Data | Oct 30, 2018
Construction projects planned and ongoing by world’s megacities valued at $4.2trn
The report states that Dubai tops the list with total project values amounting to US$374.2bn.
Market Data | Oct 26, 2018
Nonresidential fixed investment returns to earth in Q3
Despite the broader economic growth, fixed investment inched 0.3% lower in the third quarter.
Market Data | Oct 24, 2018
Architecture firm billings slow but remain positive in September
Billings growth slows but is stable across sectors.
Market Data | Oct 19, 2018
New York’s five-year construction spending boom could be slowing over the next two years
Nonresidential building could still add more than 90 million sf through 2020.
Market Data | Oct 8, 2018
Global construction set to rise to US$12.9 trillion by 2022, driven by Asia Pacific, Africa and the Middle East
The pace of global construction growth is set to improve slightly to 3.7% between 2019 and 2020.
Market Data | Sep 25, 2018
Contractors remain upbeat in Q2, according to ABC’s latest Construction Confidence Index
More than three in four construction firms expect that sales will continue to rise over the next six months, while three in five expect higher profit margins.
Market Data | Sep 24, 2018
Hotel construction pipeline reaches record highs
There are 5,988 projects/1,133,017 rooms currently under construction worldwide.
Market Data | Sep 21, 2018
JLL fit out report portrays a hot but tenant-favorable office market
This year’s analysis draws from 2,800 projects.
Market Data | Sep 21, 2018
Mid-year forecast: No end in sight for growth cycle
The AIA Consensus Construction Forecast is projecting 4.7% growth in nonresidential construction spending in 2018.
Market Data | Sep 19, 2018
August architecture firm billings rebound as building investment spurt continues
Southern region, multifamily residential sector lead growth.