Last year’s boon in single-family housing construction will have an impact on the availability and cost of building materials for nonresidential construction in 2021, which is expected to be a year of “decreasing work volume,” according to JLL’s latest Construction Forecast being released today.
Nonresidential starts were down 24% last year, and are expected to decline again in 2021. Yet, JLL sees an industry that has become more resilient and better positioned to function during the pandemic recovery.
Healthcare and industrial should be the growth winners in construction spending this year. Chart: JLL
This recovery won’t be like the last one during the Great Recession in the late 2000s. For one thing, the range between sector forecasts is wider.
JLL analyzed three indicators of future growth: construction starts, construction industry sentiment, and forecast construction spending across nine nonresidential sectors. The clear winners, in its estimation, will be distribution and healthcare. The clear stragglers: hotels and entertainment. The office sector shows the least consensus.
LUMBER PRICING WILL CONTINUE TO BE VOLATILE
The boon in new-home construction is having an impact on overall construction costs. Chart: JLL
In addition, this has not been a total construction shutdown. Single-family housing starts increased by 11% last year, and have continued to grow since last May. (According to the latest Census Bureau estimates, single-family starts in January, at an annualized rate of 1,269,000 units, were up 29.9% over the same month in 2020.)
Residential construction employment was also up last year, by 1.2%, while nonres construction employment dipped 3.9%. That growth is affecting labor and materials markets. “The growth in residential is the primary cause of our forecast for elevated cost inflation in the coming year,” states JLL.
This year, it predicts that construction cost increases will be in the higher range between 3.5% and 5.5%. Labor costs will be up in the 2-5% range. Material costs will rise 4-6% and volatility “will remain elevated.” Nonres construction spending will stabilize from the early stages of the pandemic, but still decline between 5% and 8%, although JLL foresees an upswing in the third and fourth quarter, and more typical industry growth in 2022.
One silver lining from the pandemic is that it “spurred three years of construction tech adoption to be condensed into the last nine months of 2020,” observes JLL. It cites a recent Associated General Contractors survey that found contractors planning to increase their spending for all 14 ConTech categories listed.
Labor demand should also continue, although the key to any construction recovery, states JLL, will be how quickly the population is vaccinated against COVID-19. The industry’s labor shortage was a big enough buffer to absorb some of the pandemic’s shock, and through the entire post-pandemic period “there have been more active job openings in construction than at the peak of the last expansion in 2006-2007.”
As for materials pricing, volatility will affect lumber, plywood, copper and brass mill shapes. The least volatile, price-wise, should be concrete, flat glass, insulation, and plastic construction products.
Lumber and plywood pricing is expected to remain unpredictable. Chart: JLL
NEW ADMINISTRATION COULD SHAKE UP CONSTRUCTION
JLL weighed in on the potential impact of the Biden Administration on the construction industry. The next stimulus package, if passed by Congress, should keep the economy’s growth from reversing. A large infrastructure bill “is a good possibility later this year,” which JLL thinks could be an “accelerant” to construction inflation.
Interestingly, JLL doesn’t think either a reduction in immigration restrictions or an increase in the minimum wage to $15 per hour would have a substantive impact on projects, wages, or costs, except in states like Texas where construction wages are lower than the federal rate.
Related Stories
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.
Contractors | Jul 13, 2023
Construction input prices remain unchanged in June, inflation slowing
Construction input prices remained unchanged in June compared to the previous month, according to an Associated Builders and Contractors analysis of U.S. Bureau of Labor Statistics Producer Price Index data released today. Nonresidential construction input prices were also unchanged for the month.
Contractors | Jul 11, 2023
The average U.S. contractor has 8.9 months worth of construction work in the pipeline, as of June 2023
Associated Builders and Contractors reported that its Construction Backlog Indicator remained unchanged at 8.9 months in June 2023, according to an ABC member survey conducted June 20 to July 5. The reading is unchanged from June 2022.
Market Data | Jul 5, 2023
Nonresidential construction spending decreased in May, its first drop in nearly a year
National nonresidential construction spending decreased 0.2% in May, according to an Associated Builders and Contractors analysis of data published today by the U.S. Census Bureau. On a seasonally adjusted annualized basis, nonresidential spending totaled $1.06 trillion.
Apartments | Jun 27, 2023
Average U.S. apartment rent reached all-time high in May, at $1,716
Multifamily rents continued to increase through the first half of 2023, despite challenges for the sector and continuing economic uncertainty. But job growth has remained robust and new households keep forming, creating apartment demand and ongoing rent growth. The average U.S. apartment rent reached an all-time high of $1,716 in May.
Industry Research | Jun 15, 2023
Exurbs and emerging suburbs having fastest population growth, says Cushman & Wakefield
Recently released county and metro-level population growth data by the U.S. Census Bureau shows that the fastest growing areas are found in exurbs and emerging suburbs.
Contractors | Jun 13, 2023
The average U.S. contractor has 8.9 months worth of construction work in the pipeline, as of May 2023
Associated Builders and Contractors reported that its Construction Backlog Indicator remained unchanged at 8.9 months in May, according to an ABC member survey conducted May 20 to June 7. The reading is 0.1 months lower than in May 2022. Backlog in the infrastructure category ticked up again and has now returned to May 2022 levels. On a regional basis, backlog increased in every region but the Northeast.
Industry Research | Jun 13, 2023
Two new surveys track how the construction industry, in the U.S. and globally, is navigating market disruption and volatility
The surveys, conducted by XYZ Reality and KPMG International, found greater willingness to embrace technology, workplace diversity, and ESG precepts.
