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
| Aug 19, 2022
Future sea rise could expose 720,000 more people on East Coast to flooding
An analysis by NPR based on modeling from the National Hurricane Center for New York City, Washington, D.C., and Miami-Dade County found future sea rise could expose about 720,000 more people to damaging floods later this century.
| Aug 19, 2022
Manassas Museum renovated to reimagine a civic design & engage the community
Manassas, VA has recently added to its historic Manassas Museum.
Architects | Aug 18, 2022
GSA names Charles Hardy, AIA, CCM, Chief Architect at GSA Public Buildings Service
The U.S. General Services Administration (GSA) has named Charles (Chuck) Hardy as GSA’s next Chief Architect, effective August 14, 2022. A licensed architect, workplace strategist, and certified construction manager, Hardy’s career with GSA spans more than 31 years, beginning in GSA’s Great Lakes Region as an architect and project manager.
| Aug 18, 2022
U.S. Treasury moves to boost affordable housing
The Department of the Treasury recently announced new guidance to “increase the ability of state, local, and tribal governments to use American Rescue Plan (ARP) funds to boost the supply of affordable housing in their communities,” according to a news release.
Daylighting | Aug 18, 2022
Lisa Heschong on 'Thermal and Visual Delight in Architecture'
Lisa Heschong, FIES, discusses her books, "Thermal Delight in Architecture" and "Visual Delight in Architecture," with BD+C's Rob Cassidy.
| Aug 18, 2022
The Illinois Institute of Technology restores three Mies van der Rohe buildings
With Dirk Denison Architects and Gilbane Building Company, the Illinois Institute of Technology has recently completed a $70 million housing project that has restored three Ludwig Mies van der Rohe buildings.
Multifamily Housing | Aug 17, 2022
California strip mall goes multifamily residential
Tiny Tim Plaza started out as a gas station and a dozen or so stores. Now it’s a thriving mixed-use community, minus the gas station.
| Aug 17, 2022
Focusing on building envelope design and commissioning
Building envelope design is constantly evolving as new products and assemblies are developed.
| Aug 17, 2022
New York to deploy 30,000 window-sized electric heat pumps in city-owned apartments
New York officials recently announced the state and the city will invest $70 million to roll out 30,000 window-sized electric heat pumps in city-owned apartments.
| Aug 17, 2022
IBM’s former office buildings in Boca Raton turn into a modern tech campus
Built in 1968, the Boca Raton Innovation Campus (BRiC), at 1.7 million square feet, is the largest office campus in Florida.