A recent report by JLL paints a picture of a U.S. construction industry weathering global storms and finding new footing. The 2024 Midyear Construction Update and Reforecast reveals an industry adjusting to fresh demand patterns and demonstrating surprising stability.

JLL's analysis highlights how the year has unfolded compared to initial predictions and offers an outlook for the latter half of 2024.

Stability amid Change

One key takeaway is the stabilization of construction costs. This is attributed to a combination of contractors focusing on existing projects (backlog) and improved material availability. While construction starts remain uneven across locations, overall spending is on the rise. Additionally, some developers who had been waiting on lower interest rates are finally moving forward with long-delayed projects.

Navigating New Waters

JLL experts emphasize the nuanced nature of the U.S. construction landscape. The industry is undergoing significant transformations driven by evolving economic and industry dynamics. While spending is exceeding initial estimates, project interest has also grown.

Interest rates remain a point of consideration, with a "higher for longer" approach likely to persist despite potential future cuts.  The era of near-zero rates appears to be over. This reality, alongside private and public sector spending increases, is contributing to market stability. Infrastructure investment and the ongoing post-pandemic economic recovery are expected to continue fueling the construction industry for years to come, both directly and indirectly.

Adapting to the Future

Despite financing constraints, developers will need to navigate sustained higher interest rates and varying regional outcomes. Cost growth and development will likely continue. Developers need to adapt to this post-pandemic environment by effectively managing debt, lease expirations, and emerging geographical advantages.

JLL's Louis Molinini, Americas Market Lead, Project and Development Services, highlights the positive signs impacting developer decisions: "Confidence in the market, improved margins and stable material costs have resulted in a gradual increase in total costs."  However, he emphasizes that cost increases are not uniform across regions or project types. Maintaining strong connections with local industry experts is key for navigating disruptions effectively.

Local Focus for Global Success

The report underscores the importance of a strategic focus on specific metropolitan areas. JLL's Andrew Volz, Research Manager, Project and Development Services, emphasizes this point. Recognizing the challenges posed by skill mismatches and industry disruptions requires geographically targeted capital spending decisions. This approach can optimize allocation and improve project outcomes.

While cost indices have remained relatively stable, underlying risks and evolving demand patterns present new opportunities. JLL identifies potential supply pressure for specific materials and potential mismatches between demand for new materials and overall construction trends. Analyzing the disconnect between project specifications and broader inflation will be crucial in the coming years.

Overall, JLL's midyear update paints a picture of a U.S. construction industry demonstrating resilience and adaptability. While challenges remain, the industry appears poised for continued growth and innovation.