Although commercial real estate business conditions have improved, supply chain disruptions continue to hamper CRE and the greater US economy, according to NAIOP.
According to the most recent NAIOP COVID-19 impact study in 2021, over nine out of ten developers reported delays or shortages in construction materials, implying that supply chain disruptions may outlive other pandemic impacts, raising construction costs and hindering new development.
Despite nearly two years of hardship brought on by the COVID-19 outbreak, the construction industry is steadily improving. According to a new JLL construction outlook research, the construction sector continues to experience increased demand, despite the industry’s labor and supplies shortages driving up prices and posing significant obstacles.
Construction prices have risen as a result of increased demand. Final construction expenses for a commercial project have risen 4.5 percent through August, according to JLL, with total cost growth anticipated to top 6% in the next year.
These higher prices are partly attributable to manpower shortages and supply chain backlogs, which have resulted in a lack of building supplies. According to the research, the most significant difficulty has been a shortage of workers, which has caused more project delays than a lack of materials. Labor salaries have risen as a result, with JLL estimating a 4.6 percent gain in the last year alone. However, with an unemployment rate of 4.6 percent, employment in the construction business is beginning to go up modestly.
The surge in building material prices, on the other hand, is a recent development. Lumber and steel costs, according to the research, are at their highest levels since the 1940s. The average cost of materials for a commercial project has risen by 23.1 percent year over year.
According to JLL, supply chain concerns are anticipated to persist in the next year, with overall construction costs predicted to rise by 4 to 7% in the following 12 months. As supply chain difficulties are resolved, individual building materials are projected to undergo a wide range of price adjustments. According to JLL, all material costs will rise by an average of 5 to 11 percent.
I believe that if things return to normal over the next several years, the cost of materials is a scenario that will essentially fix itself. We’ll still have higher costs than usual, but the epidemic has caused a lot of problems. Whether it’s production-level building in the United States or worldwide, where governments or states are closing factories, closing borders, and so on.
It’s a multi-faceted problem, and worldwide transportation and logistics have been severely hampered as a result. So, as those supply chains consolidate, I anticipate furthering on 2022 to become less volatile, hopefully.