Construction Industry Trends: September 2023 Roundup
It's been a wild ride for the construction industry over the past nine months—as anyone working in the industry can attest. From the latest innovations in construction technology to the impact of natural disasters on construction and fears over a potential collapse of the commercial real estate market, let’s take a look at September’s state of the construction industry.
What’s Happening with Commercial and Residential Construction?
Commercial real estate has been a hot topic in the construction industry as we enter October 2023. Commercial real estate encompasses several categories: Multifamily homes, offices, industrial, and retail spaces. Earlier this year, famed investor Charlie Munger bemoaned the state of commercial real estate, insisting that “a lot of real estate isn’t so good anymore,” and howling over “troubled” office buildings and shopping centers. “There’s a lot of agony out there,” Munger surmised.
The data shows he’s right, and wrong. With the economy showing signs of recovery and businesses looking to expand, overall commercial construction projects are—somewhat surprisingly—on the rise. It really just depends on which categories you’re examining.
For example, NAR’s September Commercial Real Estate Market Insights shows a 32% increase in delivered units for multifamily housing over the previous 12 months. The market is set to remain fairly strong with the historically low number of houses available, and mortgage interest rates hurtling toward 8%.
Commercial Office Space
At the same time, investor sentiment for commercial office space is incredibly low, with most forecasting the potential for severe losses. By the end of 2025, $1.5 trillion in commercial loans come due. With office occupancy rates struggling throughout COVID-19 shutdowns and still struggling today, investors fear a default. With remote work becoming the new norm, the commercial real estate sector is witnessing a clear decline in demand for office spaces. In major cities, office vacancy rates hit a 30-year high, with overall prices for building sales down and unoccupied square-footage way up.
Additionally, several traditional retailers going out of business due to increased online competition has resulted in reduced demand for commercial real estate spaces in certain regions. Malls could be converted into housing, with built-in restaurants and greenspaces—which may be the best way for some retail spaces to thrive.
Industrial has had an interesting journey, as investments grew during 2020 in response to supply chain disruptions and issues that derailed global economies and spurred massive supply-side inflation. That growth has exploded lately, with recent business investments in new manufacturing construction making up more than 20% of U.S. Q2 GDP—the largest such share since the early 1980s. With multiple pieces of legislation passed over the last two years that incentivize building and investment, industrial appears well-positioned for now.
On the residential front, the demand for housing continues to soar—but the fundamentals make it difficult to buy, sell, and build homes. The pandemic accelerated the shift towards remote work and remote learning, leading to a greater desire for larger homes and suburban living. But while home prices have shrunk in some coastal areas where populations have dropped, they’ve inflated in other lower-cost areas, leading to affordability issues everywhere. And while would-be buyers are staring at higher mortgage rates and monthly payments, would-be sellers are reluctant to give up their low rates and get back out on the market—even with record home appreciation.
In short, the housing market isn’t working as it’s supposed to, thanks in large part to the lack of available homes. And while housing completions are up August 2023 to August 2022, housing starts are down over the same period—meaning we still aren’t hitting our nationwide homebuilding targets anytime soon. People want houses, but are backing out from sticker shock. This puts homebuilders in a difficult position, and perpetuates an already vicious cycle.
The Impacts of Natural Disasters on the Construction Industry
Natural disasters can have significant impacts on the construction industry. From hurricanes and floods to wildfires and earthquakes, these events can cause widespread damage to infrastructure and delay construction projects. In addition to the physical destruction, natural disasters can also lead to increased costs for construction materials and labor, as demand surges in the aftermath of such events. It’s a “must” to be prepared to respond to these challenges by implementing disaster preparedness plans, investing in resilient infrastructure, and collaborating with government agencies and other stakeholders to ensure a swift and effective recovery.
In recent years, the increasingly common nature of bad wildfires and hurricanes have battered the U.S.
When it comes to hurricanes, the damage is two-fold. Physical damage causes delays and increased costs for ongoing construction projects. Structures are destroyed, materials washed away, and equipment sometimes damaged beyond repair. Secondly, the demand for construction services skyrockets after hurricanes, as regions undergo rebuilding efforts—which often takes years to complete. This surge in labor demand puts a strain on the resources and workforces of both those in industry and government. While the number of storms per year has remained relatively flat, the impacts of those storms have become more devastating, leading to ever-increasing disaster relief and more complicated rebuild efforts.
Wildfires share a similar destructive quality. Fires can destroy entire neighborhoods and even entire towns, destroying homes under construction and existing structures. Materials may need to be replaced, equipment may be damaged, and workers may be unable to access sites due to safety concerns. Similarly, the demand for construction services surges after wildfires as communities look to rebuild and people are displaced from their homes. This surge can strain the industry's resources and workforce, leading to further delays and increased competition for labor and materials. Fires have become a menace across all of North America, with Canadian wildfire smoke inundating residents from New York to Atlanta. And sometimes, all it takes is a single bad day: Oregon saw 50 new wildfires pop up overnight after more than 1,600 lightning strikes hit the state one August night.
August Construction Employment Increases
The latest August Employment Situation Summary by the U.S. Bureau of Labor Statistics (which was released in September) portrays a promising future for home builders, echoing the burgeoning demand in the housing sector. In August, the construction domain saw a job boost of 22,000, matching the average monthly job addition of 17,000 recorded over the past year. While residential building witnessed a job spike of 2,400, albeit a 1% decrease from its earlier peak, non-residential building roles soared to a record high with 1,800 job additions.
The news continues to remain positive in this area. In June, the Labor Department reported a notable uptick in construction jobs, with 23,000 new positions. That reporting noted that yearly data indicated a consistent rise, averaging 15,000 new jobs every month. It was also reported that recent statistics revealed an 11% increase in jobs for residential buildings compared to pre-pandemic figures. Furthermore, in May, construction job openings reached 366,000, an increase of 19,000 from the previous month. Monthly hires also rose to 379,000, marking an increment of 22,000 hires.
While backward looking data can’t necessarily be trusted moving forward, construction hiring and employment has been solid.
The Construction 3D Printer Market
A newly released report indicates a booming trajectory for 3D printing within the construction industry. While the market was valued at a considerable $3.5 billion in 2022, projections suggest a meteoric rise to an impressive $523.3 billion by 2030, translating to a CAGR of around 87%. Such swift expansion is driven by the escalating demand for eco-friendly and cost-effective housing solutions, requirements for speedier construction methods, and the growing embrace of 3D printing techniques in construction dynamics.
Traditional construction methods are now being slowly overtaken by less wasteful and more efficient 3D printing. Furthermore, the versatility of 3D printing allows for the creation of more environmentally-friendly structures, utilizing materials like bamboo or recycled concrete.
With the construction industry's growing fondness for 3D printing, a plethora of opportunities are unfolding. There's a rising demand for both prefabricated 3D-printed components and uniquely crafted architectural elements. This growth also heralds the rise of specialized service providers, given that 3D printing demands specific expertise and equipment.