Rising Labor Costs Means Higher Construction Costs For 2015
According to Chicago’s award winning Leopardo Companies annual industry report Construction and Economics Report and Outlook, the low price of oil is reducing the cost of construction. Unfortunately at the same time, a lack of skilled labor and heightened demand is increasing construction costs.
Leopardo reports that nearly 25% of the skilled construction workforce has left the industry since 2008. Older workers are retiring and fewer younger workers are entering the trades than in the past. Several contractors and subcontractors have closed since the downturn, too. This leaves fewer skilled laborers to handle the level of work, which is at pre-recession levels currently.
Current, historically low interest rates are helping to fuel an increase in construction activity. In Chicago, large-scale projects in the office, retail and multifamily sectors are leading the boom. Chicago examples include the expansion of McCormick Place, 3,000 new residential units in the downtown area are to be built in 2015 (that’s up from 5,000 over the last two years) and the redevelopment of the Fulton Market Cold Storage building for Google. All are taking advantage of lowered costs and all are challenged in general by the crunch in skilled labor at the same time.
Is the construction cavalry coming?
Contrasting the downbeat labor news are national numbers for the sector. Even though the costs are increasing and staffing is a challenge, the US Bureau of Labor Statistics said in their April 2015 report that, “Construction added 45,000 jobs over the month. Employment in construction has grown by 280,000 or 4.6 percent over the year. Specialty trade contractors added 41,000 over the month. This growth split between residential and non residential specialty trades.”
This is great news for the new commercial development industry because the increased costs and scarce labor resources don’t seem to add up to a dampening of the the ongoing growth in the commercial real estate sector.
The United States Census Bureau reported that commercial construction projects in New York, N.Y. hit $20 billion dollars in 2014. Dallas and Houston are right behind New York with over $11 billion in commercial construction projects during 2014. Even with its challenges, the future is looking bright.