- According to a third-quarter report from real estate company JLL, the construction industry is poised for a national slowdown by the end of 2017, according to Building Design + Construction.
- Increasingly tight lending standards for construction loans, growing material and labor costs (the latter of which is being driven by tight labor supplies) and uncertainty around government construction spending all contributed to JLL's 2017 predictions.
- JLL said the "softer construction industry" would force increased competition between companies, and those that have already gained expertise in building information modeling, 3-D scanning technology and drones will be able to weather the downturn better than their low-tech counterparts.
JLL looked at the office, hospitality, retail and industrial segments of construction and found that:
- Offices under construction and preleasing activities were up, while construction starts and completions were down from the second quarter of 2016,
- Hotel occupancy rates held steady in the third quarter, but developers only increased the hotels in construction planning or in-progress by 1.5%. Metros such as Nashville, New York, Seattle and Denver are expected to see their hotel stock grow the most.
- Although brick-and-mortar retail store closings are at cyclical highs, it has had a negligible impact on commercial real estate thus far. However, large chains like Office Depot, Wal-Mart, Macy's, Sears, Kmart and Men's Wearhouse represent almost 1,000 store closings.
- The industrial sector recorded its lowest vacancy rates in 16 years, and 18% of third-quarter leases were for newly constructed space. Indicators point to more growth to come, although it still is not expected to hit pre-recession levels. Philadelphia, Chicago, Houston and Dallas represent one-third of industrial absorption.
In its 2017 industry predictions, Dodge Data & Analytics predicted a "more mature phase of expansion", rather than use the term "slowdown." Dodge Data & Analytics Chief Economist Robert Murray said the real recovery only began to pick up steam in 2012 and rather than a "boom," the industry is in a "measured upturn."
Murray predicted that the construction industry's period of growth will continue into 2018 — later than JLL estimates — then a cyclical slowdown will emerge in 2018 and 2019. Despite the inevitable downward trend in the cycle, Murray said the slow nature of the recovery means that the subsequent decline will also be gradual. Dodge also made predictions in the same categories as JLL, such as:
- Retail — Growth in the grocery store sector, as well as other retail, will drive it up 5% (102 million square feet) in 2017.
- Warehouse — Low vacancy rates and e-commerce have contributed to this sector's strength, with demand exceeding supply. Dodge predicts a 2% (206 million square feet) bump in 2017 starts.
- Office — Dodge predicts a 10% (110 million square feet) increase in 2017 starts, driven by corporate office consolidations into new headquarters.
- Hotel — Dodge said hotel construction starts, coming off a 2016 spate of convention center and casino-related activity, should decline by 1% (70 million square feet).