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Raw materials, labor costs temper expectations for soaring profits
CHICAGO, March 10, 2015 – Building revenue and demand for new commercial construction may be rising fast—but so are costs. Profitability for new commercial building projects will be tricky in 2015, as soaring demand may not lead to soaring profits.
“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, JLL Project and Development Services, 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.”
Affirming rising demand, the American Institute of Architects’ Consensus Construction Forecast projects that spending on non-residential construction is expected to rise 7.7 percent in every commercial property sector this year. Likewise, the Construction Backlog Indicator, which tracks non-residential construction, hit a post-downturn high of 8.8 months in the third quarter of 2014.
A new JLL report on U.S. non-residential construction activity highlights several trends to watch in 2015:
While the overall market is recovering, it’s not an even recovery. Construction of distribution facilities supporting e-commerce and retail supply chains will continue to expand, particularly in markets like Dallas and Miami, where new facilities are needed to support sophisticated logistics strategies. Conversely, due to a high volume of office projects started in 2014, more than 16 million square feet of new office development is under construction in Houston; 44 percent of that space remains unleased, which may cause vacancy issues for the city down the road, especially if oil prices remain low.
“Vacancy rates for industrial properties have dropped in the last two years, and competition for big distribution centers has increased dramatically,” said Dana Westgren, research analyst with JLL. “Particularly in locations near ports and other key supply chain locations, new construction can replace older, now-obsolete facilities.”
Download a copy of the JLL U.S. Construction Perspective for Q4 2014 report here.
For more news, videos and research resources on JLL, please visit the firm’s U.S. media center webpage. Bookmark it here: http://bit.ly/18P2tkv.
About JLLJLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual fee revenue of $4.7 billion and gross revenue of $5.4 billion, JLL has more than 230 corporate offices, operates in 80 countries and has a global workforce of approximately 58,000. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 3.4 billion square feet, or 316 million square meters, and completed $118 billion in sales, acquisitions and finance transactions in 2014. Its investment management business, LaSalle Investment Management, has $53.6 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.jll.com.
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