HOUSTON—Construction represents 10% of the US GDP. During the last seven years, the construction market has demonstrated healthy and steady growth with no abatement in sight.
The commercial/industrial sector of the AIA Architectural Billing Index indicates for the last year, there has been an ever-increasing amount of design work: translation, an even greater volume of construction is on the way. Moreover, the recent natural disasters across the United States, Mexico and the Caribbean can only continue to impact the ever-increasing gap of labor supply and demand, according to analysis from DRB Consulting LLC.
A survey from the Associated General Contractors of America found that 67% of construction firms are having difficulty finding skilled workers such as carpenters, bricklayers, electricians and plumbers. This labor shortage can be tied to the Great Recession of 2008/2009, where skilled labor left the industry to find new and more reliable employment. The general consensus has been that a significant percentage stayed with those new professions and never returned to the industry. And, Baby Boomers are reaching retirement age at a rate of 10,000 a day, with a good portion of the construction workforce expected to hang up the tool belt for an easier life.
Current labor resources are at a premium with nearly two-thirds of the employers believing it will remain that way. In fact, there are repeats of previous boom times where construction crews are moving to a new project for $ .25 to $ .50 more an hour–sometimes in the middle of an assignment.
What this means to owners is a general trend of increasing prices. The Engineering News-Record index has pegged construction inflation at 4% +/- for the past year.
DRB Consulting LLC is advising clients to budget 5% to 7% inflation for projects currently in design. Inflation will start to increase. Correspondingly, DRB also believes the Federal Reserve will increase rates next year as an attempt to keep inflation in check.
In the short term, the labor shortage will continue. The current administration's focus on more jobs and bringing investment back to the United States has a direct effect on future construction volume, GlobeSt.com learns.
To illustrate the veracity of construction demands at the local level, this was the sixth straight year of sub-6% vacancy for Houston industrial product, according to NAI Partners. The vacancy rate stood at 5.6% nearing the end of the fourth quarter, with year-to-date net absorption at 5.74 million square feet and deliveries at 8.49 million square feet. The amount of space under construction during 2017 has remained steady, currently standing at 6.12 million square feet, with about 30% of that space occupied.
Real Capital Analytics reports year-to-date industrial sales volume in the Houston area at $1,308.8 billion, resulting in a year-over-year change of 107%. The buyer composition is made up of 34% private, 32% institutional, 16% public listed/REITs, 10% cross-border and 7% user/other.
A recent example of assurance in the market is the acquisition by Brennan Investment Group of Fairway Park Business Center, a five-building 135,571-square-foot industrial/warehouse park at 2523 Fairway Park Dr. from Sealy Corp. Also, hard-to-find bulk distribution space has broken ground. Northwest Logistics Center, a 411,442-square-foot distribution center on a 26-acre site at 6751 N. Eldridge Pkwy. near Highway 290 and Beltway 8, has kicked off construction. The project is scheduled to deliver in June 2018.
Set to commence operations in 2018 are IKEA's two 500,000-square-foot rail-served warehouses (one warehouse occupied in 2017, and the second is underway), Ravago's opening of a 700,000-square-foot warehouse and administration office, and Vinmar International's 500,000-square-foot rail-serviced facility launching in the second half of 2018 in Cedar Port Industrial Park, says NAI.
The Houston Purchasing Managers Index registered 49.3 in October, up from 48.6 in September. Readings above 50 signal economic expansion during the next three to four months, and below 50 signals contraction. After 10 consecutive months of expansion, Hurricane Harvey pushed the PMI below 50 in August. The October reading suggests the region is approaching recovery from the storm, GlobeSt.com learns.
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Lisa Brown
Lisa Brown is an editor for the south and west regions of GlobeSt.com. She has 25-plus years of real estate experience, with a regional PR role at Grubb & Ellis and a national communications position at MMI. Brown also spent 10 years as executive director at NAIOP San Francisco Bay Area chapter, where she led the organization to achieving its first national award honors and recognition on Capitol Hill. She has written extensively on commercial real estate topics and edited numerous pieces on the subject.
