Developers, Project Managers 'Overwhelmingly' Concerned About Inflation

Project managers and developers in the commercial real estate industry are “overwhelmingly” concerned about rising costs as inflation continues to heat up, new research shows.

A recent survey  by Northspyre reveals that industry insiders are eyeing inflationary pressure, so-called inadequate productivity and uncertain project outcomes as the biggest concerns looming over construction projects heading into 2023.

More than half of the 92 project leads surveyed think inflation will have a “moderate-to-major” impact on their roles, with 85% saying they intend to be more careful and strategic in purchasing decisions. And more than 60% of project managers surveyed say the biggest challenges they face include keeping projects on budget amid rising inflation, supply chain disruptions and higher interest rates.

Diving more deeply into the data reveals additional nuances: anxiety about economic uncertainty is more widespread among project managers for large corporations (86%), the report notes, and 52% of those surveyed say they’ll become more diligent in selecting vendors and procuring building materials.

The pain is likely to endure beyond the short term, as contractors typically do’t feel the effects of economic conditions until about a year later since construction projects tend to incubate over 6 to 18 months, Justin Brown, President and CEO, Skender, told GlobeSt.

“With rapidly rising interest rates, an expected recession and uncertain economic headwinds, our industry will inevitably experience some contraction,” Brown said.

And the ‘angst’ over increased construction costs have also led some developers to adjust their timelines and expectations, said Mike Gordon, Global Chief Investment Officer at Harrison Street.

“Increased costs and a challenging financing environment are leading a lot of developers to shelve or adjust their projects, and as a result, we are being very selective and we’re underwriting very conservatively,” he said.