A shortage of labor has forced contractors to redouble their employee retention efforts.
JLL released its Construction Trends and Mid-Year Outlook several days ago, updating its 2023 Construction Outlook published in March.
The new report, with its updated set of projections, highlights several hurdles the industry faces during a time of enormous economic uncertainty. Specifically, the report examines general construction industry health, along with the state of the labor market, materials availability and overall costs.
Focusing first on industry health, the report noted that while the field has enjoyed increased activity this year, rising interest rates and tighter lending standards have led to a slump in construction starts since June.
A heated market is up against the growing likelihood of a cool down, leading to substantial hurdles for the industry. JLL predicts that the construction slowdown will continue into next year. This is due to interest rates which are not expected to peak until this year. The authors expect construction activity to vary widely by sector. Specialization and complexity management will become increasingly important in driving contractor success. It’s no surprise that many construction firms are doubling down on talent retention. Fold in declining productivity, and it’s no surprise many construction firms are doubling down on talent retention.
Construction sectors buttressed by public spending plan to continue adding workers to their payrolls, as they scarcely miss a beat.
On the other hand, the sectors anticipating plummeting construction starts are already beginning to pare their employee ranks.
The big, and worrisome, picture, JLL reports, is that for the foreseeable future, construction activity per employee is expected to stay above pre-pandemic levels, while employment growth will remain stubbornly below industry requirements.
Materials costs
There’s good news on the materials front. Materials costs are expected to remain stable. The first half of this year was marked by longer lead times, especially in the mechanical, electrical, and plumbing industries. Here, materials supply is failing to keep pace with the burgeoning need for data centers and electrification.
As they look ahead, industry prognosticators see a return to single-digit inflation. Materials prices are expected to increase at the same moderate rate. Some materials are also under pressure due to a lack of supply. At the same time, some materials are experiencing supply pressures.
That is the case, for instance, with Canadian softwood, whose supply has been hurt by summer wildfires.
Total costs
Costs in the industry have stabilized, making for the slowest growth period since just after the emergence of Covid-19 was termed an international emergency. That has buoyed contractors’ outlooks, even while activity levels have moderated.
Building construction starts have declined, leading JLL’s report authors to forecast active build construction to dwindle by a fifth in the first months of next year.
At the same time, wage growth will stay elevated at a projected rate of five to seven percent, while materials costs are expected to average four percent. Lead times have also improved, leading to increased inventories. JLL expects a two- to four-percent increase in total costs. It warns, however, that “average total costs increases by sector may look very different.”