An Update on JLL’s Construction Perspective

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Construction activity expected to grow in 2016, but the ascent will be slower.

2015 was a remarkable year for post-recession construction activity. The construction industry took one of the hardest-hits in 2009-2010, and has been slow to bounce back and rebuild their business activity – until 2015.

Highlights include:

  • Office space under construction peaked at 92.8 m.s.f.
    • Philadelphia was at 3.2 m.s.f. in Q4 2015
  • Construction costs increased in primary office markets, driven by skyrocketing labor costs that motivated growth in secondary markets
  • Industrial construction was the shining star as consumer confidence grew

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While construction activity will continue to grow this year, the climb will not be as high as the prior year as executives in the industry are beginning to strategically think about which sectors and markets to invest in.

In addition, China’s economic struggles throughout the past few years will begin to affect the United States economy.  Because the construction industry lags the economy by a year, the full effects of the lag will not reach the construction market until 2017 or 2018.  Decline in consumer demand also affects the market, especially influencing retail and manufacturing demand. And labor shortages in the construction industry, along with skyrocketing sheet glass prices, will shake business confidence in some sectors.

So what are the key construction markets that executives are looking at?

Energy

The impact of the decline in energy prices on construction began to rear its head at the end of 2015, as office construction activity in energy markets, such as Houston, dropped dramatically.  However, sublease space reached record highs.  With energy prices projected to stay low throughout 2016, construction will continue to stall.  Experts predict that oil prices will rise again by 2017, restarting the cycle.

 The South

The South has become the new frontier for construction activity.  Thanks to low labor and land costs, many large companies moved down south to build new manufacturing and office spaces in 2015, driving a population influx into cities like Charleston, Atlanta, and Charlotte.    

 Technology

Primary tech markets, such as San Francisco and Silicon Valley, will continue to sport some of the highest construction costs nationwide, thanks to high demand as the economy continues to become more tech-savvy.  It is predicted that in 2016 there will be an increase in office construction demand for secondary tech markets, like Chicago and Austin.

Sustainability Efforts

Renovation activity reached new heights in 2015, thanks to a stronger push for sustainability resources and office development, which in turn enhanced corporate social responsibility.  This push for new build outs not only attracted millennial talent, but also retail and industrial developers redeveloped existing spaces to include new technology that will engage consumers in unique ways.  This sustainability trend will continue into 2016.