JLL: Construction Costs Have Stabilized

(Illustration courtesy of JLL)

The U.S. construction industry is adjusting to new demand patterns, according to JLL, Chicago.

JLL’s Midyear Construction Update and Reforecast found that construction costs have stabilized in 2024, mostly due to backlog-conscious contractors and improved material conditions. Though construction starts remain slow in some locations and not all sectors are performing equally well construction spending is up and some interest rate holdouts are moving on long-deferred projects, the report noted.

Regarding interest rates, “higher for longer” is still the working paradigm–even with some rate cuts on the horizon, the report said. “The era of near-zero interest rates is not likely to return,” JLL said. “Private sector construction spending is increasing, aided by some loosening of capital, and public spending has also provided market stability. Infrastructure investment and post-pandemic economic recovery will continue to support the construction industry for years to come, both directly and indirectly.”

Costs will continue to grow despite financing constraints, so developers need to adapt to post-pandemic changes while managing debt, lease expirations and emerging geographical advantages. “They must also navigate sustained higher interest rates and varying local outcomes,” JLL said.

“Confidence in the market, improved margins and stable material costs have resulted in a gradual increase in total costs,” said Louis Molinini, Americas Market Lead, Project and Development Services with JLL. “However, cost increases are not uniform across regions or project types, and maintaining connections with local industry experts and partners is essential for navigating disruptions effectively.”

Contractors are still taking cues from the positive signs for their next steps with hiring and retaining talent for the short term and anticipated work. Wage growth predictions remain moderately higher than historical rates as a result. Local market dynamics and corrections provide more useful insights and better detail industry nuances than national data, the report said. JLL noted supply pressure exists for certain materials, and demand for new materials may not align with overall changes. “Analyzing the disconnect from broader inflation caused by project specifications will be crucial in the coming years,” the report said.