2019’s Second Quarter saw office construction steadily on the rise. Even amidst increased building costs, the industry was still able to sustain record heights so early in the year’s cycle. However, things began to take a turn as 2019 approached Q3.
Although this last year has seen a rise in the
number of construction starts, the industry is being forced to face some tough
challenges. In particular, commercial real estate office construction is at a
higher risk than other types of buildings.
Let’s look at what’s going on in the market
that’s affecting office development this year:
Rising
Costs of Building Materials
The brewing tariff tensions around the world
are pushing the costs of construction to increase greatly. Some of the highest
tariffs apply to costly building materials, most of which we import for abroad.
This directly increases the expense of nearly every new construction project
that’s happening now in the United States.
The current trade war has increased the price
for glass curtain wall, solar panels, structural steel, light fixtures, and
electronics. In some cases, it’s even costing developers hundreds of thousands
of dollars for the purchase and delivery of international materials.
With prices so high, the current forecast
makes it difficult to move forward with office developments.
Lack of
Labor
Labor shortages are another culprit behind the
rising costs of construction.
For the most part, office buildings are
located in metro areas and other popular destinations for business. However,
these areas usually aren’t overflowing with the manpower required to completely
build an office property. The lack of labor is then overcompensated by higher
pay, and although this does power the project, it also boosts the bill.
Popular
Markets Feel the Heat
The issues of labor shortages and high priced
materials peak in the country’s hottest markets. Los Angeles, New York,
Seattle, Atlanta, and Houston are just a few of the areas being affected by the
rising costs of construction.
On top of these points, popular markets also
face the issue of expensive land. The square footage costs for commercial land
is exponentially rising in big metros, making it difficult to purchase area for
new construction projects.
All
Eyes on Investors
Amidst office construction’s troubled times,
the industry’s looking to see how investors respond.
Already, lenders are pulling back on their
spending thresholds. Investors are cautiously navigating through the industry’s
unknowns. Amidst these construction-based issues, the conversations surrounding
a possible economic slowdown are prompting investors to put a hold on their
portfolio expansion.
What’s
Next for the Office Scene?
Although these setbacks are surely having
effects on domestic office construction, the industry is expected to stand
strong throughout the challenges.
While these issues have been persisting since
2018, the country’s commercial real estate sector is still undergoing
expansion. The industry’s positive influences are fueling for commercial
construction projects to continue, as growth is imminent.
What trends do you expect to see within the
office sector’s construction and development moving forward?
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