Wells Fargo Securities: Labor Costs Likely to Keep Increasing
There is no relief in sight for the serious shortage of skilled construction workers for commercial real estate projects, said Wells Fargo Securities, Charlotte, N.C.
Wells Fargo Securities’ fourth-quarter CRE Chartbook called construction job openings “highly elevated” in January–exceeding 300,000. “Adding to this challenge, labor shortages have steadily applied upward pressure on wages, as firms have raised compensation to both attract and retain workers,” the report said. “We expect wages will continue to rise, especially for more niche skilled occupations that often require licensing or vocational training, such as welders, pipefitters and elevator installers.”
Commercial real estate construction will continue to see increasingly stark competition from occupations that demand similar skills, especially the energy and manufacturing sectors, Wells Fargo said. “More restrictive immigration controls will only add to the industry’s hiring challenges,” the report noted.
The construction industry could actually see some relief from the rapidly rising material prices seen in recent years, the Chartbook said. Structural steel prices have recently shown signs of easing amid progressing trade negotiations and slower global economic growth. “Lower oil prices should also lead to further easing in asphalt-based products prices, while lumber, gypsum wallboard and copper prices have also pulled back,” the report said.
“Overall construction spending appears set to remain firm in 2019 [despite increasing costs],” Wells Fargo said, noting architecture firm billings, which lead construction spending by 9 to 12 months have remained healthy for the past 25 consecutive months, an indication nonresidential construction activity has strong momentum. “The strength also likely reflects the drive by developers to make their projects more desirable to younger and more mobile workers and consumers,” the report said.
Construction lending is growing more cautious, the report said. “[But] despite some expected moderation given a more cautious lending environment, the flow of credit to the commercial real estate sector should slow yet remain strong,” Wells Fargo said.
The Chartbook noted nearly three-quarters of respondents to the Mortgage Bankers Association’s recent commercial real estate outlook survey said they expect 2019 lending to at least equal last year’s lending. “Solidly performing portfolios–delinquency rates remain near record lows–and a robust pipeline of projects requiring financing are driving lender optimism,” it said.
