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
Contractors | Apr 11, 2023
The average U.S. contractor has 8.7 months worth of construction work in the pipeline, as of March 2023
Associated Builders and Contractors reported that its Construction Backlog Indicator declined to 8.7 months in March, according to an ABC member survey conducted March 20 to April 3. The reading is 0.4 months higher than in March 2022.
Market Data | Apr 6, 2023
JLL’s 2023 Construction Outlook foresees growth tempered by cost increases
The easing of supply chain snags for some product categories, and the dispensing with global COVID measures, have returned the North American construction sector to a sense of normal. However, that return is proving to be complicated, with the construction industry remaining exceptionally busy at a time when labor and materials cost inflation continues to put pricing pressure on projects, leading to caution in anticipation of a possible downturn. That’s the prognosis of JLL’s just-released 2023 U.S. and Canada Construction Outlook.
Market Data | Apr 4, 2023
Nonresidential construction spending up 0.4% in February 2023
National nonresidential construction spending increased 0.4% in February, according to an Associated Builders and Contractors analysis of data published by the U.S. Census Bureau. On a seasonally adjusted annualized basis, nonresidential spending totaled $982.2 billion for the month, up 16.8% from the previous year.
Multifamily Housing | Mar 24, 2023
Average size of new apartments dropped sharply in 2022
The average size of new apartments in 2022 dropped sharply in 2022, as tracked by RentCafe. Across the U.S., the average new apartment size was 887 sf, down 30 sf from 2021, which was the largest year-over-year decrease.
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.
Industry Research | Mar 9, 2023
Construction labor gap worsens amid more funding for new infrastructure, commercial projects
The U.S. construction industry needs to attract an estimated 546,000 additional workers on top of the normal pace of hiring in 2023 to meet demand for labor, according to a model developed by Associated Builders and Contractors. The construction industry averaged more than 390,000 job openings per month in 2022.
Market Data | Mar 7, 2023
AEC employees are staying with firms that invest in their brand
Hinge Marketing’s latest survey explores workers’ reasons for leaving, and offers strategies to keep them in the fold.
Multifamily Housing | Feb 21, 2023
Multifamily housing investors favoring properties in the Sun Belt
Multifamily housing investors are gravitating toward Sun Belt markets with strong job and population growth, according to new research from Yardi Matrix. Despite a sharp second-half slowdown, last year’s nationwide $187 billion transaction volume was the second-highest annual total ever.
Contractors | Feb 14, 2023
The average U.S. contractor has nine months worth of construction work in the pipeline
Associated Builders and Contractors reports today that its Construction Backlog Indicator declined 0.2 months to 9.0 in January, according to an ABC member survey conducted Jan. 20 to Feb. 3. The reading is 1.0 month higher than in January 2022.
