The copious growth of the construction industry in 2015 is fueling continued strong activity in 2016. According to JLL’s latest report on non-residential construction activity, the rate of growth in construction is slowing—yet, starts continue at a strong pace.

The catch: growth is expensive. While a welcome decline in prices for steel and some other materials is underway, high labor costs, glass prices and steep competition throughout the industry continue to prove challenging.

“For financial viability, project sponsors will need to strike a balance between the lower costs for some materials, like steel, and the ever-increasing cost of glass and labor,” explains Todd Burns, President, Project and Development Services, JLL Americas. “Location continues to be a key driver in finding success throughout various industry sectors. With a slowed growth in construction, executives need to think strategically in terms of where they will invest.”

 Key markets to watch:

·         San Francisco/Silicon Valley: The cradle of the U.S. high-tech industry continues to be among the most costly markets for construction, motivating some technology companies to look to other tech-engaged cities—such as Chicago and Austin—for new development.

·         Southeast: With low labor and land costs, cities like Charleston, Atlanta and Charlotte are seeing an influx in population as companies develop new manufacturing and office facilities. In fourth quarter 2015, Atlanta led U.S. industrial construction with 19.6 million square feet under development.

·         Houston: Office construction dropped by 41.7 percent in fourth quarter 2015 as oil prices dropped and sublease availability skyrocketed. Enterprising companies will pursue opportunities to relocate to newly affordable office spaces with significant amenities, using the capital saved to invest in modern workplace designs and customized space.

“The construction industry is naturally cyclical and mirrors the effects of the stagnating global economy,” said Dana Westgren, Research Analyst, Project and Development Services, JLL Americas. “The most successful projects in 2016 and beyond will find a middle ground that offsets labor shortages and rapidly increasing glass prices with lower costs of steel and other construction materials caused by a low demand overseas.”

Key sectors to watch:

·         Education: In 2015, education sector construction activity grew by more than 12 percent year over year, in terms of project value. In 2016, schools and universities are expected to continue investment in new facilities to capture student spending on campus, developing multi-function laboratories, expanded mixed-use areas and more collaborative spaces on campus.

·         Industrial: Industrial construction grew by more than 22 percent year over year, in terms of value, to reach $84.1 million. Project deliveries in this sector also grew year over year, with 178.4 million square feet delivered in 2015. Industrial project starts will likely increase in 2016, given high demand and a lack of available space.

·         Commercial: Renovation will continue apace not just in office buildings, but also in retail and industrial facilities as companies re-envision their stores and distribution centers to accommodate new technologies and the omnichannel shopping experience.  

A push for new build outs in the retail sector is expected to continue throughout 2016, as developers reinvent existing space to engage consumers in unique ways and combine brick-and-mortar locations with online stores.

“We have never seen a greater sense of urgency from retailers to address their stores’ role in delivering a ‘True Omni Branded Experience’ for consumers,” said Aaron Spiess, Executive Vice President, Managing Director, Project and Development Services, JLL Americas. “The pressure of emerging digital experiences and platforms has escalated the need to exceed consumer expectations of the store. With the continuous advent of new e-commerce capabilities, this is a trend we expect to continue.”

The JLL Project Management business is a leader in the development, design and construction of commercial real estate projects for the world’s most prominent corporations, educational institutions, public jurisdictions, healthcare organizations, retailers, banks, hotels and real estate owners. Ranked the No. 6 Construction Management Firm in Building Design + Construction’s annual Giants 300 survey and No. 7 on Engineering News Record’s 2015 list of Top 50 Program Management Firms, JLL’s project management team comprises 3,200 project managers across 49 countries worldwide, and is actively managing $25.6 billion under construction.