Welcome to August. Now is the perfect time to give some thought to how the year has progressed so far in the construction industry. What has worked? What has not? What predictions have panned out? And what predictions have fallen flat on their face? Let’s explore what has happened so far. (Don’t forget, it’s an election year, makes you wonder what could change come November!)
JLL presents some research on this very topic in its 2024 Midyear Construction Update and Reforecast. It helps paint a picture of how 2024 has unfolded in construction and gives us a glimpse into what is still to come in the second half of 2024.
Let’s break this out into four key areas.
Industry Health
Industry health means a lot of things to many different people, but perhaps one of the biggest talking points in the past few years has been interest rates. “Higher for longer” is still the working paradigm, even with some rate cuts on the horizon. JLL suggests the era of near-zero interest rates is not likely to return. Even with high interest rates, the construction industry is still seeing some loosening of capital and starts are moving upward again in the private sector.
All in all, we see private sector construction spending is increasing, aided by some loosening of capital, and public spending has also provided market stability. Looking to the future, infrastructure investment and post-pandemic economic recovery will continue to support the construction industry for years to come, both directly and indirectly.
Labor Trends
Perhaps one of the biggest trends to keep an eye on is the labor market in the construction industry—something we have talked about and reviewed here in depth. JLL data shows wage growth predictions remain moderately higher than historical rates as a result. Local market dynamics and corrections provide more useful insights and better detail industry nuances than national data.
While there are some signs of normalization, pointing to contractors working with conflicting strategic pressures as starts ramp up, construction hiring still faces challenges. Contractors are still taking cues from the positive signs for their next steps with hiring and retaining talent for the short term and anticipated work. (Although not stated, training will be an ongoing concern as construction continues to outpace the national average and fights to keep pace.)
Material Trends
Are material costs up or down? That is the question on many contractors’ minds. While cost indices have remained relatively stable, certain opportunities have emerged due to underlying risks and changing demand patterns.
Also, we see supply pressure exists for certain materials, and demand for new materials may not align with overall changes. Looking to the future, analyzing the disconnect from broader inflation caused by project specifications will be crucial in the coming years. Transparency and data will be key to ongoing success.
Total Costs
Many factors are playing in construction’s favor today. For instance, confidence in the market in the next year, recovered margins, and stable materials costs have allowed total costs to stay on an upward trend.
Why? Construction costs have stabilized in 2024 due to backlog-conscious contractors and improved material conditions. Though construction starts remain slow in some locations, and not all sectors are performing equally well, construction spending is up, and some interest rate holdouts are moving on long-deferred projects.
All in all, we are at an interesting point in construction history—one where costs are stabilizing a bit, labor is scarce, and construction needs to do more with less. Naturally, technology is one means to heighten labor efficiencies and complete projects on time and on budget. But without the labor, we all know everything goes to hell in a handbasket. We still need workers no matter how you cut it. And that is not going to change anytime soon. Frankly, I don’t care what any of these pundits tell you. The future is now, and we must prepare for it.
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