Leopardo’s 2017 Construction Economics Report and Outlook is an in-depth analysis of factors that impact development, renovation and build-out costs in commercial facilities, including the office, industrial/manufacturing, retail, multifamily, healthcare and lodging sectors.
Nationally, year-over-year construction spending increased by 4.2 percent in December 2016, as total volume reached an estimated $1.182 trillion. The pace of growth, however, was less than in 2015, when volume increased by 8.7 percent. The slowdown in growth was due to firms pulling back on capital expenditures and speculative development amid concerns about the global economy, political uncertainty, volatility in energy prices, rising construction labor costs and a cautious environment for construction financing.
Chicago and suburban areas experienced construction gains in the office, industrial, healthcare and multifamily sectors, while volume was flat in the retail and homebuilding sectors. The Chicagoland market also saw a 1.4 percent drop in construction employment, compared to a national average increase of 2.2 percent. The loss of construction jobs exacerbates the challenge of rising labor costs in the sector, which will continue into 2017 and beyond.
Key findings in the report include:
- Office construction spending grew 20.9 percent during 2016, driven by growth of the technology sector. Office space will continue to be in high demand in cities like Chicago that are well-suited to millennials’ desire for live-work-play neighborhoods. However, companies that are concerned about high labor cost are increasingly interested in lower-cost markets like Salt Lake City, Denver and San Antonio.
- Construction spending in the U.S. manufacturing sector contracted 4.3 percent in 2016 after a record-setting 33.3 percent growth rate in 2015. In the Chicago area, however, industrial/manufacturing construction reached an all-time high last year, as record levels of net absorption reduced occupancies and increased rental rates across the region.
- U.S. healthcare construction spending grew 1.7 percent to $41.4 billion by the end of 2016, down 5.4 percent from the previous year. Rising healthcare costs have prompted a shift from hospitals to outpatient facilities, driving demand for medical office buildings and helping to backfill vacancies in retail strip centers. This trend extends to the Chicago area, where new regional clinics are under way to be closer to patient populations.
Leopardo has released its 2016 Construction Economics Report and Outlook, an essential guide to help business leaders, healthcare administrators and government decision-makers understand the factors that impact construction costs. Download the report for free by entering your email address on the left.
This year’s report shows that 2015 was a turning point for commercial real estate construction, as spending reached the highest level since the Great Recession and even the pace of growth accelerated more than in previous years, reveals the report.
By the end of 2015, total spending on U.S. construction grew 10.5 percent to $1.1 trillion, the largest year-over-year gain since 2007. The most dynamic growth was in the private sector, where construction spending expanded 12.3 percent, compared to just 5.6 percent growth in public-sector projects.
”With a steadily growing economy, low national vacancy rates and historically low interest rates, companies are seeing this period as the right time to expand or relocate their facilities to accommodate growth,” said Jim Leopardo, CEO of Leopardo. “We’re seeing healthy construction volume of nearly every property type, both nationally and in the Chicago area.”
Key findings in the report include:
– Multifamily construction has grown by 29.4 percent annually since 2011, driven by a movement of renters by choice in urban work-live-play areas. In the same period, single-family home construction increased 14.8 percent annually.
– Office construction spending grew by 22 percent in 2014, driven by job growth in the tech sector. This growth spurt is expected to scale back to an average 5.9 percent annual growth rate through 2019.
– Construction jobs grew 7.8 percent in the Chicago area, outpacing the national average of 4.2 percent in 2015. In 2014, Chicago’s 3.2 percent construction job growth lagged the national average of 5.7 percent.
Leopardo has released its 2015 Construction Economics Report and Outlook, an essential guide to help business leaders, healthcare administrators and government decision-makers understand the factors that impact construction costs. Download the report for free by entering your email address on the left.
This year’s report shows that different factors have opposing effects on construction costs. Low oil prices greatly reduce the cost of construction, and some material costs have come down over the past year. But these factors reducing cost are more than offset by the strong increase in labor costs, brought on by a shortage of skilled workers as more than 25 percent of Illinois construction workers left the industry over the past five years. The overall effect is that construction costs are rising as development volume increases in Chicago and across Illinois.
“Organizations that are considering new construction and renovation projects need to understand the factors in the economy and in the construction industry that may affect the timing and cost of their projects,” said Leopardo President Rick Mattioda. “Our annual Construction Economics Report and Outlook offers a wealth of useful information to help people make informed decisions when building.”
To create the report, Leopardo analyzed economic and construction industry data from universally respected sources, and utilized that data as well as the experience of the firm’s principals to forecast the direction of construction costs over the next year.
Scores of factors influence construction decisions on a daily basis: Supply and demand, lifetime costs, efficiencies, impact on the environment, price fluctuations and much more. Owners, developers, architects, brokers and contractors all work to navigate complex construction economics and build smarter. To do this and save both time and money, construction firms offer a comprehensive menu of smart building solutions, such as fast tracking, building green, changing the palette of materials, purchasing in bulk, building lighter, exploring alternative methods of construction, etc.
This quick reference guide, Construction Pricing Trends, provides readers with a series of charts that offer a high-level summary of consumer, producer, material and energy pricing fluctuations between 2004 and 2014 (utilizing the latest data available in January 2015). The building material pricing includes aluminum, asphalt, cement, concrete block and brick, copper, iron and steel, wood, plywood, painting and coating. The energy pricing includes gasoline, crude petroleum, diesel and electrical. The final chart compares the Producer Price Index (PPI) to Consumer Price Index (CPI) since 2004.