Construction industry can expect change

JLL report predicts escalating costs will continue through 2022.
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Completion of projects in 2022 is expected to be affected by labor availability and wages, material costs and construction costs. Shown here is Great Lakes Capital’s Walker Ridge Commerce Park project at 3174 Four Mile Road in Walker, which is underway. Courtesy Great Lakes Capital

JLL’s 2022 construction outlook anticipates highs and lows in the industry.

According to Henry D’Esposito, JLL construction research manager, construction costs are expected to continue to escalate in 2022. Construction projects are predicted to increase in the spring of 2022, but the labor market is projected to continue its struggle with the lack of workers.

The unemployment rate in August 2020 was 7.6% and in August 2021 it was 4.6%. Despite the decline in the unemployment rate, the labor market remains relatively unchanged, according to the report. Nationally, the total number of construction workers in the construction industry in August 2020 was 7.2 million. A year later, August 2021, it was 7.4 million.

“Labor markets have been challenging in construction for years, and now that pain is being felt across many sectors of the economy, leading to a scarcity of available labor,” D’Esposito said.

The number of construction projects is expected to begin increasing in spring 2022 because construction volumes in the winter months are typically slower. Fear surrounding the delta variant of COVID-19 also has contributed to the current slowdown. 

Although JLL anticipates construction volumes to increase in the spring, the completion of projects is expected to be affected by labor availability and wages, material costs and construction costs.

Construction wages have increased, in part, due to the lack of qualified labor. Between August 2020 and August 2021, labor wages increased by 4.46%. In 2022, labor costs are expected to continue their upward trend of the past six months, within the 3%-6% range, according to the report.

JLL foresees the average price increase for all construction materials to be in the 5%-10% range. Some commodities such as metal “are not likely to continue increasing endlessly.” Prices for copper and brass products, gypsum products, lumber and plywood, steel mill products, aluminum mill products, plastic construction products, insulation materials, concrete and flat glass have been volatile for the past 12 months, some more than others, the report said.

The prices for those materials are expected to stabilize in the coming year; however, “that stability will bring broad-based inflation across almost all construction materials.”

In addition to construction material prices, lead times and delays are of concern in the industry.

Backlogs coupled with a “new round of production and shipping shutdowns globally due to the delta variant have meant that suppliers are unable to catch up despite their best attempts to do so,” the report said.

The backlog for domestic flatbed truck shipments is declining, but global shipping is experiencing delays, which JLL predicts will continue into next year.

“In 2020, nearly 85% of project delays and cancellations were caused by either owner-led decisions or government-ordered construction shutdowns,” per the report. “So far in 2021, the balance has shifted toward supply issues. Material availability, internal labor availability and subcontractor labor availability have become the largest challenges for ongoing construction projects, after owner-led decisions.

“Much of this shift is to be expected, as government shutdowns were limited to early 2020 and supply issues have been growing throughout the year, but it is notable that despite all of the headlines around problems with materials, both labor and materials created nearly the exact same level of delays, at 23% and 22%, respectively,” the report stated.

With the challenges involving labor shortages, increased wages and material costs, and the effects of delivery backlogs, total construction cost is expected to increase next year.

“Through August, average final construction costs for a commercial project had increased 4.5%, and total cost growth by year-end is likely to surpass 6%,” D’Esposito said. “A similar level of cost escalation, in the range of 4% to 7%, is expected into 2022.”

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