by Dan Rafter
Demand for new construction is on the rise. Too bad costs are, too.
That’s the takeaway from a new report on non-residential construction activity by JLL.
According to the report, commercial construction activity should rise in 2015. JLL points to a pair of reasons for this. First, the Constrution Backlog Index has grown in every region except the county’s Southeast Region. This indicates that developers and construction crews will be busy in 2015.
At the same time, office vacancy rates across the United States dropped from 14.1 percent in 2012 to 10.9 percent in the fourth quarter of 2014. That should also increase the demand for new construction.
This doesn’t mean that JLL has found only good news when it comes to construction activity. While demand is up and vacancies down, the costs of building are on the rise. This is mostly because of rising labor costs, according to JLL.
JLL says that cities such as New York City, Chicago and Minneapolis will most feel the pain of construction cost hikes.
Another interesting piece of news from the JLL report: The construction industry gained 48,000 jobs in December, reaching 290,000 total new jobs in 2014. But construction employment still has a ways to go before getting near the peak that it reached in 2007. There are still 1.5 million fewer construction jobs today than there was in 2007.
“Leasing momentum is boosting construction demand across multiple commercial property sectors, but raw material and labor costs are making it more expensive to get out of the ground than ever before,” said Todd Burns, president of JLL project and development services for the Americas. “Demand is exploding, but demand isn’t everything. You have to consider the bottom line of every project to make sure it makes economic sense short- and long-term.”