Is Real Estate Construction Entering a Prolonged Downturn?
Commercial Real Estate Construction Set To Decline Dramatically
- New development expected to drop across property types — including apartments and industrial — which noted all-time high supply in 2024 and 2023, respectively
- Office and retail construction has already been minimal over the past few years, with causes likely extending beyond the real estate cycle
- Long-term supply constraints support existing property performance, aiding rent growth, occupancy and valuations over time
Construction Sector Faces Labor Shortages And Skills Gaps
- Baby Boomer retirements are depleting the construction workforce, shrinking the pool of experienced workers in the sector
- Younger generations are prioritizing college education over trades, limiting the pipeline of new construction talent
- A potential slowdown in immigration could further exacerbate skilled construction labor shortages and constrain real estate supply
Capital And Material Costs May Worsen Construction Challenges
- Construction loans now carry interest rates typically above 8%, limiting access to financing for new development projects
- Prices for construction materials like lumber, steel and cement could rise if President-Elect Trump institutes new tariffs on imports
- Higher financing and material costs may further suppress development, compounding long-term supply constraints
*Index: 2016=100, not seasonally adjusted
Pandemic period not shown due to outsized impact of supply chain issues on the price of softwood lumber
Sources: Marcus & Millichap Research Services, BLS
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