• Industrial Construction Costs Ease, Housing Starts Fall, Jobless Claims Drop

    Industrial Construction Costs Ease

    Pricing pressures are easing, but industrial development projects remain historically expensive largely because of inflated costs for materials, brokerage Cushman & Wakefield reported.

    Supply bottlenecks of the early pandemic months have been less pronounced over the past year, though high demand for ecommerce and other logistics space across North America are keeping projects pricey and challenging developers to complete them on schedule.

    “While industrial construction pipelines continue at historically high levels, the sector is facing several headwinds,” Brian Ungles, Cushman’s president of project and development services, said in a statement that noted heightened competition for materials and labor. “This along with widespread inflation has driven construction costs higher.”

    A Cushman & Wakefield survey of North American industrial developers found 85% of respondents expect slight to significant increases in material delivery lead times in the coming year, down just slightly from the 88% anticipating those delays a year ago. Developers remain concerned about costs that remain historically high for items including electrical gear, cement and sand.

    The brokerage said the highest per-square-foot costs for industrial project buildouts are currently in Western areas of North America, led by cities including Portland, Calgary, San Diego, Seattle and Oakland, but also including Montreal. The most expensive city in the survey, Portland, has medium-sized buildouts averaging $105 per square foot and large-sized buildouts averaging $98 per square foot, the report said.

    Cushman & Wakefield said the most cost-effective industrial development cities include those in the U.S. South and Midwest, along with Mexico. They are led by Houston and also include Memphis, Mexico City, Guadalajara, Nashville and Louisville.

    U.S. construction costs rose 17.5% from the prior year in 2021, the largest annual spike in 50 years, according to U.S. Census Bureau data. Brokerage CBRE projected those costs would rise another 14.1% by the end of 2022.

    Housing Starts Decline

    Residential construction project starts dropped 1.4% from the prior month and 21.8% from a year earlier in December, the government reported Thursday. The latest batch of mixed signals for U.S. housing also showed rising mortgage applications for home purchases, according to a prominent trade group.

    The Commerce Department reported a total of approximately 1.3 million unit starts for single-and multifamily projects in December. Single-family starts were down 25% from a year earlier, with starts for projects with five or more units down 16.3%

    The Mortgage Bankers Association trade group said total mortgage application volume rose 27.9% from the week earlier for the week ended Jan. 13. Purchase applications rose 25% from the prior week, but were down 35% from the comparable week of 2021, with refinance applications rising 34% for the week while declining 81% from a year earlier.

    “Mortgage rates are now at their lowest level since September 2022, and about a percentage point below the peak mortgage rate last fall,” Mike Fratantoni, the trade group’s chief economist, said in a statement. “As we enter the beginning of the spring buying season, lower mortgage rates and more homes on the market will help affordability for first-time buyers.”

    Mortgage rates remain well above year-earlier levels, keeping prospective buyers including apartment renters on the sidelines and also creating caution among builders concerned about selling new units. The bankers group noted that December’s mortgage applications for new home purchases were down 5% from November and dropped 25.2% from December 2021.

    Jobless Claims Edge Lower

    Initial claims for unemployment insurance declined 15,000 from the prior week to 190,000 for the week ended Jan. 14, the Labor Department reported Thursday.

    Claims remain historically low with the national unemployment rate at 3.5%, even with recent layoffs that have especially hit the technology industry. The government said the four-week moving average for initial claims was 206,000, down 6,500 from the prior week.

    The total for continuing claims in all programs, tracked on a more delayed basis, was approximately 1.9 million for the week ended Dec. 31. That was up 159,159 from the previous week but below the 2.3 million for the comparable week of 2021.

    Source: www.CoStar.com