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
Giants 400 | Aug 22, 2023
2023 Giants 400 Report: Ranking the nation's largest architecture, engineering, and construction firms
A record 552 AEC firms submitted data for BD+C's 2023 Giants 400 Report. The final report includes 137 rankings across 25 building sectors and specialty categories.
Giants 400 | Aug 22, 2023
Top 175 Architecture Firms for 2023
Gensler, HKS, Perkins&Will, Corgan, and Perkins Eastman top the rankings of the nation's largest architecture firms for nonresidential building and multifamily housing work, as reported in Building Design+Construction's 2023 Giants 400 Report.
Apartments | Aug 22, 2023
Key takeaways from RCLCO's 2023 apartment renter preferences study
Gregg Logan, Managing Director of real estate consulting firm RCLCO, reveals the highlights of RCLCO's new research study, “2023 Rental Consumer Preferences Report.” Logan speaks with BD+C's Robert Cassidy.
Market Data | Aug 18, 2023
Construction soldiers on, despite rising materials and labor costs
Quarterly analyses from Skanska, Mortenson, and Gordian show nonresidential building still subject to materials and labor volatility, and regional disparities.
Apartments | Aug 14, 2023
Yardi Matrix updates near-term multifamily supply forecast
The multifamily housing supply could increase by up to nearly 7% by the end of 2023, states the latest Multifamily Supply Forecast from Yardi Matrix.
Hotel Facilities | Aug 2, 2023
Top 5 markets for hotel construction
According to the United States Construction Pipeline Trend Report by Lodging Econometrics (LE) for Q2 2023, the five markets with the largest hotel construction pipelines are Dallas with a record-high 184 projects/21,501 rooms, Atlanta with 141 projects/17,993 rooms, Phoenix with 119 projects/16,107 rooms, Nashville with 116 projects/15,346 rooms, and Los Angeles with 112 projects/17,797 rooms.
Market Data | Aug 1, 2023
Nonresidential construction spending increases slightly in June
National nonresidential construction spending increased 0.1% in June, according to an Associated Builders and Contractors analysis of data published today by the U.S. Census Bureau. Spending is up 18% over the past 12 months. On a seasonally adjusted annualized basis, nonresidential spending totaled $1.07 trillion in June.
Hotel Facilities | Jul 27, 2023
U.S. hotel construction pipeline remains steady with 5,572 projects in the works
The hotel construction pipeline grew incrementally in Q2 2023 as developers and franchise companies push through short-term challenges while envisioning long-term prospects, according to Lodging Econometrics.
Hotel Facilities | Jul 26, 2023
Hospitality building construction costs for 2023
Data from Gordian breaks down the average cost per square foot for 15-story hotels, restaurants, fast food restaurants, and movie theaters across 10 U.S. cities: Boston, Chicago, Las Vegas, Los Angeles, Miami, New Orleans, New York, Phoenix, Seattle, and Washington, D.C.
Market Data | Jul 24, 2023
Leading economists call for 2% increase in building construction spending in 2024
Following a 19.7% surge in spending for commercial, institutional, and industrial buildings in 2023, leading construction industry economists expect spending growth to come back to earth in 2024, according to the July 2023 AIA Consensus Construction Forecast Panel.