JLL: Brief Construction Contraction Possible

The construction industry remains exceptionally busy but cautious about a potential economic downturn, JLL said in its Construction Outlook.

“The construction pipeline remains robustly active and year-over-year construction costs remain up despite a drop in pricing for select materials,” the report said. “Reimagining the built environment is critical to thriving in a post-COVID world, regardless of sector. However, economic indicators point to broader uncertainty. A brief contraction is predicted and ongoing geopolitical conflicts imbue the outlook with more volatile swings in supply chain and pricing.”

JLL noted construction cost increases fell within expected ranges last year; below 2021 but well above historical growth. “We expect 2023 construction costs to moderate alongside broader inflation, falling closer to the average historical rate,” the report said.

Construction materials prices declined in the second half of 2022, especially for steel and lumber, but prices were 16% higher on average in 2022 than in 2021, JLL said.

U.S. construction value put in place increased 10.2% year-over-year, slightly below total construction inflation and in line with the prior year’s heightened activity, the report said. The year-end rate was up 7.7% from the prior year on a seasonally adjusted annual basis. JLL noted it expects 5.9% higher construction value put in place and 5% more active construction projects on average in 2023.

Construction activity will likely peak in mid-2023 then contract due to an ongoing decline in starts, the report said. “As major investments in the nation’s built environment remain a pressing need and activity is elevated, demand for materials and labor will remain strong during this lull in starts. Billings are expected to surge once economic recovery releases pent-up demand.”