Will Office Construction Slow Down Thanks to Rising Costs?

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?