A strong retail sector has helped drive 2016 U.S. construction activity with retail construction projects up 24.4% year-over-year. Overshadowing the good news is a cloud of economic uncertainty that has companies laser-focused on lean budgeting and smart spending decisions.
According to JLL’s latest report on non-residential construction activity, U.S. construction employment grew 4.7% in the first quarter of 2016 over the first quarter of 2015, with many workers engaged on retail projects. Concerns about China’s steep economic deceleration, combined with a drop in U.S. gross domestic product (GDP) from 1.4% in the fourth quarter of 2015 to 0.5% in the first quarter of 2016, have made companies reluctant to invest.
The market for commercial construction remains active for now. The JLL report shows a strong first quarter with steady growth projected for second quarter. The office, industrial and retail sectors are very active as companies continue projects that broke ground a year or two ago. A hint of the economic clouds causing concern comes from a small decline in office construction starts.
“Developers and occupiers are proceeding with caution, but they continue to build and renovate,” explains Todd Burns, President, Project and Development Services, JLL Americas. “However, project sponsors today are thinking more strategically about development versus renovation. The best-managed companies have learned to keep their capital spend within about two% of the plan by starting with a realistic budget, leveraging data and analytical platforms, and putting the right skills together in a centralized project team.”
Key sectors to watch
Retail: Retail vacancies continue to decline, and retail has surged ahead of other property types in construction activity. Construction grew 24.4% year over year, from 57.2 million sf in first.
Industrial: Industrial facility deliveries grew year-over-year in Q1 2016, reflecting the continuing strength in demand for modern industrial properties—much of it from retailers and e-commerce companies striving to meet changing consumer demand and service requirements. Construction grew 12.9%, from 157.7 million sf in Q1 2015 to 178 million sf in Q1 2016.
Office: Office building construction grew by 20.2 year-over-year, from 80.5 million sf to 96.8 million sf—but starts declined by 33%, from 20.3 million to 13.6 million, reflecting economic concerns and hesitancy to launch new projects.
Retail innovation and renovation
Much of the retail construction growth in Q1 2016 has come from renovation, rather than new deliveries, as retailers are evolving to meet consumers’ ever-growing expectations for unified online and brick-and-mortar experiences.
“Retailers must innovate quickly to capture the untapped needs and expectations of consumers, who expect the same brand experience whether shopping online or in the brick-and-mortar store,” said Aaron Spiess, co-founder of Big Red Rooster, JLL’s brand experience company. “If retailers wait too long to translate latent customer expectations into new stores or renovation programs, they may find that customers have become entrenched with competing brands and are not going to return.”
Another incentive to renovate, notes Spiess, is a new federal tax break providing “safe harbor” for some remodeling expenses. Eligible retailers and restaurants can reduce 75% of qualifying expenses with the remaining 25% capitalized and depreciated over time.
Key markets to watch
Nashville: The Southeast saw an uptick in office, industrial and retail construction in the last year. Nashville, in particular, has seen rapid construction growth and low vacancy rates as employers take advantage of the city’s low-cost, well-educated workforce.
San Francisco: The Bay area is catching up to New York in of construction costs, driven by high demand and high labor costs. San Francisco is on pace to exceed New York as the U.S.’ most expensive construction market in 2016.
Dallas: As retailers followed population flows to Texas, Dallas has become one of the few markets that experienced retail development growth. Dallas was the most active retail market in Q1, up nearly 80% year over year.
Related Stories
Sustainability | Mar 16, 2023
Lack of standards for carbon accounting hamper emissions reduction
A lack of universally accepted standards for collecting, managing, and storing greenhouse gas emissions data (i.e., carbon accounting) is holding back carbon reduction efforts, according to an essay published by the Rocky Mountain Institute.
Sports and Recreational Facilities | Mar 15, 2023
Georgia State University Convocation Center revitalizes long-neglected Atlanta neighborhood
Georgia State University’s new Convocation Center doubles the arena it replaces and is expected to give a shot in the arm to a long-neglected Atlanta neighborhood. The new 200,000 sf multi-use venue in the Summerhill area of Atlanta is the new home for the university’s men’s and women’s basketball teams and will also be used for large-scale academic and community events.
Sponsored | Cladding and Facade Systems | Mar 15, 2023
Metal cladding trends and innovations
Metal cladding is on a growth trajectory globally. This is reflected in rising demand for rainscreen cladding and architectural metal coatings. This course covers the latest trends and innovations in the metal cladding market.
Building Tech | Mar 14, 2023
Reaping the benefits of offsite construction, with ICC's Ryan Colker
Ryan Colker, VP of Innovation at the International Code Council, discusses how municipal regulations and inspections are keeping up with the expansion of off-site manufacturing for commercial construction. Colker speaks with BD+C's John Caulfield.
Contractors | Mar 14, 2023
Balfour Beatty launches mental health hotline for at-risk employees
On-site construction workers are the second-highest at-risk occupational group for suicide, according to the Centers for Disease Control and Prevention. In late October 2022, the general contractor Balfour Beatty launched an innovative online tool for its employees and industry partners that provides streamlined access to potentially lifesaving mental health resources.
Multifamily Housing | Mar 14, 2023
Multifamily housing rent rates remain flat in February 2023
Multifamily housing asking rents remained the same for a second straight month in February 2023, at a national average rate of $1,702, according to the new National Multifamily Report from Yardi Matrix. As the economy continues to adjust in the post-pandemic period, year-over-year growth continued its ongoing decline.
Contractors | Mar 14, 2023
The average U.S. contractor has 9.2 months worth of construction work in the pipeline, as of February 2023
Associated Builders and Contractors reported today that its Construction Backlog Indicator increased to 9.2 months in February, according to an ABC member survey conducted Feb. 20 to March 6. The reading is 1.2 months higher than in February 2022.
Healthcare Facilities | Mar 13, 2023
Next-gen behavioral health facilities use design innovation as part of the treatment
An exponential increase in mental illness incidences triggers new behavioral health facilities whose design is part of the treatment.
Mixed-Use | Mar 11, 2023
Austin mixed-use development will provide two million sf of office, retail, and residential space
In Austin, Texas, the seven-building East Riverside Gateway complex will provide a mixed-use community next to the city’s planned Blue Line light rail, which will connect the Austin Bergstrom International Airport with downtown Austin. Planned and designed by Steinberg Hart, the development will include over 2 million sf of office, retail, and residential space, as well as amenities, such as a large park, that are intended to draw tech workers and young families.
Performing Arts Centers | Mar 9, 2023
Two performing arts centers expand New York’s cultural cachet
A performing arts center under construction and the adaptive reuse for another center emphasize flexibility.
