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% growth from 2018 to this year and a high level of confidence by contractors for the construction industry to remain strong. It also expects material costs to remain at current levels. Furthermore, 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. The industry will consider a growth rate similar to that of 2018. 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% 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% 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% increase in 2018 due to the cooldown of material price increases. However, surging labor costs throughout the industry may outweigh this.
Trade policy will impact commodity prices.
Tariffs represent an immediate threat to the industry. However, international trade deals may mitigate these threats. These deals 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. In a survey of contractors, 46% reported employing staff dedicated to BIM work.
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