The JLL 2019 Construction Outlook Research Report shows strong momentum from 2018 carrying the construction industry through 2019. The report indicates there will be steady building costs and vibrant economic fundamentals to sustain the industry. The report predicts a similar 5.1 percent growth from 2018 to this year, and a high level of confidence by contractors for the construction industry to remain strong. Material costs are expected to remain at current levels and the Federal Reserve has indicated there is a possibility of no interest rate increases for the year.
All forward indicators are still flashing green.
Forward indicators are “flashing green” for construction and a growth rate similar to 2018 will be considered a success by the industry. Risks to the construction industry of a broader slowdown include a trade war escalation, deteriorating macroeconomic conditions, and a worsening labor shortage. Meanwhile, potential boosts in large-scale federal infrastructure investment and relief from tariffs and the continued GDP growth of 3.5 percent bodes well for the momentum to continue for the industry.
Three factors will impact how well the construction industry continues to grow: rising construction costs, trade policy, and construction technology.
Total construction costs may outpace U.S. inflation
If the building costs (labor, materials, and equipment) outpace inflation of 1.9 percent as has occurred in the last two years, the widening gap will sideline select projects. It is projected that building costs will increase at a slower rate than the 3.4 percent increase in 2018 as a result of cooldown of material price increases. This may be outweighed by surging labor costs throughout the industry.
Trade policy will impact commodity prices.
Tariffs represent an immediate threat to the industry but may be mitigated by international trade deals that would lift tariffs in exchange for other trade or economic concessions.
Construction technology many help with labor shortages.
The adoption of construction technology such as the use of modular construction and building information modeling (BIM) software is poised to have the biggest long-term impact on the industry. Proponents of the modular construction industry see a future centered on select sectors for now including hospitality and healthcare. BIM software is slowly gaining traction and in a survey of contractors, 46 percent reported having staff dedicated to BIM work.
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