#206 – Inside Our Industry – Industrial Construction Costs Fall, Price Pressures Still in Play

Posted on | Inside Our Industry

When a headline says “Construction Costs Fall”, that catches our eye!

Industrial Construction Costs Fall, Price Pressures Still in Play
ConnectCRE.com, Amy Wolff Sorter, June 6, 2024

A couple of years ago, industrial construction across the United States was red-hot, with a record amount of inventory coming out of the ground. These days, the construction pipeline is slowing down. Furthermore, “building new industrial properties in the current high-cost, high-interest and labor-constrained environment poses several challenges to developers and tenants,” according to Cushman & Wakefield’s recently released “Americas Industrial Construction Cost Guide.”

The guide studied 45 markets throughout the Americas, focusing on small, medium and large distribution centers, and shared the following insights:

  • Costs are down from recent highs . . . but construction costs moderated from their double-digit year-over-year increases in 2022. In March 2024, costs increased by 2.6% YoY, with building costs increasing by 3.8%. However, this is being offset by the current inflationary environment, though “most increases are within the 10-year averages,” the guide said. The forecast calls for continued modest increases through the end of the year.
  • A constrained labor market means hard-to-fill jobs. The guide said that open positions continue to outpace hires. As of February 2024, 9.2% more positions were available than hires. Labor costs are also increasing, too – in March 2024, they were up by 4.9% YoY (compared to the private earnings of 4.2% for the same period). Cushman & Wakefield analysts said, “Wages are expected to continue to trend higher in 2024 while this labor balance persists.”
  • Onshoring and nearshoring boost southern U.S. and Mexican development. The sector “has been buoyed by recent U.S. trends of onshoring and nearshoring,” the guide said. This is an outgrowth of the supply chain disruptions during the pandemic, which emphasized the need to bring production closer to home. Furthermore, the U.S. government is focused on onshoring/nearshoring production to support national security. Much of this occurs in Mexico due to “its lower costs and proximity to the U.S.,” the guide said.
  • Cost-effective markets are in Latin America and Texas. The guide explained lower costs in Latin American markets like Guadalajara, Mexico City, Monterrey and Costa Rica. In the U.S., Dallas and Houston are also considered cost-effective. Meanwhile, the Canadian cities of Calgary, Vancouver and Toronto and U.S. cities, including Seattle, Cleveland and Miami, were the most expensive markets to build.