There are myriad factors impacting the construction industry. Everything from the economy to the labor shortage is having an impact on how quickly, efficiently, and effectively work gets done in construction. The last half of 2022 saw declines in material prices, a winding down period of overheated inflation, and overall volatility. Some suggest we began to see the easing of supply chain issues and COVID measures at the end of last year. But what still lurks ahead for construction in 2023? Let’s take a look inside one crystal ball.
JLL’s 2023 U.S. and Canada Construction Outlook suggests the construction industry remains very busy, while also cautious with the anticipation of a downturn. Still, the pipeline remains busy. In the year ahead, the organization expects construction costs to moderate alongside broader inflation, falling closer to the average historical rate.
Materials and Supply Chain
Lead times and availability for most materials showed mixed improvement over the year, with finished products for specialty trades such as mechanical, engineering, and plumbing items still experiencing lead time increases or stabilization of extended lead times. Perhaps one of the biggest factors weighing on supply chains and materials forecast is geopolitics.
Let’s take a closer look at a few different types of construction—and JLL’s anticipation for the year ahead. For one, it suggests pandemic-boosted online shopping produced high deliveries. This is now requiring strategic investments in urban logistics and changing manufacturing trends, which will impact construction square footage.
Shopper preferences have shifted in the past several years, which is leaving considerable amounts of outmoded mall and middle-of-the-road retail space. In the future we will see conversion and new opportunities.
Construction pipeline continues to fall amid rising construction and financing costs and work-from-home trends. JLL suggests this means some markets will now see new boutique projects, which will be driven by a flight to quality and amenities.
A big trend here is that rents are coming down with a boom in product hitting the market. Still, affordability is a big hurdle to overcome. JLL says targeted conversions and product design will modify the current development pattern.
Much anticipation surrounds the IIJA (Infrastructure Investment and Jobs Act) here in the United States. This and other major bills are leading to the kickoff of major projects. Still, challenges exist in both government and construction. JLL suggests eroded purchasing power and a divided House and Senate could impact deployment of these funds and make additional resources more difficult to come by in the future.
Key Trends to Watch in the U.S.
Still, there are other big trends to keep an eye on here in the United States. For one, labor remains an issue despite high demand and hiring activity. Billings are expected to surge once economic recovery releases pent-up demand.
JLL also expects construction activity to contract as the current pipeline delivery stabilizing around pre-pandemic levels by late 2024. Market participants’ willingness to wait out interest rate fluctuations is slowing down starts, but demand remains elevated.
Additionally, as major investments in the nation’s built environment remain a pressing need and activity is elevated, expect demand for materials and labor will remain strong.
Perhaps one of the biggest trends to watch is still the labor shortage. In 2023, the U.S. construction industry still faces structural challenges with its labor force due to shifting demographics, limited immigration, domestic migration, and education preferences. The issues are particularly acute in the skilled trades, project management, and heavy and civil engineering.
All in all, construction needs to prepare for less workers and new types of work and opportunities. Perhaps this is where technology needs to enter the equation in order to get the work done on time and on budget, meeting the needs of today’s fast-paced society.
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