How Commercial Construction Challenges Are Mounting

Andrew Volz, Construction Research Lead, JLL. Image courtesy of JLL

The construction industry continues to be hit by shortages and rising costs of labor and materials, according to a first-half 2022 construction outlook from JLL. But the situation has gotten even more tangled due to supply chain disruptions; widespread inflation, especially in energy prices; and Russia’s invasion of Ukraine, followed by sanctions against Russia.

“As these combine with continuing labor difficulties and forthcoming interest rate increases, construction volume may not recover at initially anticipated rates,” wrote Andrew Volz, construction research lead for JLL and the outlook’s author. Meanwhile, he added, “costs remain at historically high levels and face additional uncertainty.”

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The report cites figures from Construction Industry Round Table. According to the data, four out of five contractors reported that delays hindering construction are somewhat or significantly higher than in the pre-pandemic years. The better news is that the industry overall reports stable backlogs heading into this year.

On an inflation-adjusted basis, nonresidential construction spending has continued to decline in 2022, hitting a record low in January. This sector “continues to see positive projections but lacks concrete time frames for full recovery. Delayed return-to-office plans and larger, active conversations around the future of work and patterns of living continue to sideline projects,” the outlook states.

Construction quantified

To put some numbers to all of this, the net result of materials and labor issues “will be yet another above-average year of total construction cost growth, forecast to increase 8 percent to 12 percent over the next 12 months,” Volz predicts.

With construction wages rising at the highest rate seen in 40 years, labor costs are anticipated to increase by between 4 percent and 6 percent.

The contribution of materials to the overall cost growth is expected to average 10 percent to 12 percent. In tandem with that, lead times for most materials are increasing, compared to late 2021, while inventories contract, “with most materials moving from a lead time measured in weeks to one measured in months,” the report says.

Read the full report by JLL.