Commercial Real Estate News
2023 Financing Constraints Rapidly Drive Down Construction Starts in U.S.
According to a new report by JLL, with the federal funds rate at 5%, demand for construction loans has plummeted and standards are tightening across the board. While the impact on construction spending has not fully been realized, and further slowdowns are anticipated, value put in place is creeping up again as more publicly funded projects in infrastructure and manufacturing break ground and the construction industry remains healthy overall. Total construction spending should be up roughly 6% year-over-year due largely to the federal boost.
JLL further reports threats to the construction industry (geopolitics, inflation, recession, natural disasters, etc.) remain unresolved but are increasingly perceived as less immediate. Overall industry sentiment remains positive as consumer spending and the labor market continue to outperform forecasts.
However, construction activity is expected to slow in the upcoming quarters, and the resolution or escalation of these threats will impact demand, costs, and recovery.
Construction wages climbed 17% since January 2020 nationally and, with just 4% unemployment and 374,000 job openings, tackling the current pipeline is still top of mind. Even with starts slowing down, JLL expects wages to trend upwards in the next months to 5-7% total year-over-year growth.
Of the major materials divisions tracked by JLL, only two are forecast at or above a 10% increase year-over-year, while the average expected growth is just 4%. The increase is below prior years' growth by a significant margin and reflects stabilization and improvements in the supply chain.
Final demand, which includes margins and overhead as well as labor and materials, fell 1.1% from the prior quarter start in July. The decline, when contrasted against modest materials growth and strong wage growth, reflects firms' changing strategies to the anticipated slowdown and shifting conditions for various sectors, says JLL.
