Impacts on CRE: Construction Costs & Labor Shortages

[vc_row][vc_column][vc_single_image image=”861″ img_size=”full” alignment=”center”][vc_raw_html]JTNDZGl2JTIwaWQlM0QlMjJidXp6c3Byb3V0LXBsYXllci04Nzk1NDYyJTIyJTNFJTNDJTJGZGl2JTNFJTBBJTNDc2NyaXB0JTIwc3JjJTNEJTIyaHR0cHMlM0ElMkYlMkZ3d3cuYnV6enNwcm91dC5jb20lMkYxNzQwMjc5JTJGODc5NTQ2Mi1pbXBhY3RzLW9uLWNyZS1jb25zdHJ1Y3Rpb24tY29zdHMtbGFib3Itc2hvcnRhZ2VzLmpzJTNGY29udGFpbmVyX2lkJTNEYnV6enNwcm91dC1wbGF5ZXItODc5NTQ2MiUyNnBsYXllciUzRHNtYWxsJTIyJTIwdHlwZSUzRCUyMnRleHQlMkZqYXZhc2NyaXB0JTIyJTIwY2hhcnNldCUzRCUyMnV0Zi04JTIyJTNFJTNDJTJGc2NyaXB0JTNF[/vc_raw_html][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]As we inch our way out of the artificial recession created by the pandemic, there is a pent-up demand to pick-up where things left off. Especially in the construction sector. However, those with grand intentions of building their next project have been slapped in the face by an increase in construction costs and an unforeseen, baffling labor shortage.

Material costs across the board, from lumber to concrete, have risen to historical highs. Supply chain issues are the root of this problem as well as tariffs. Labor shortages, on the other hand, are the unintended consequence of the federal stimulus packages. In short, qualified workers have been disincentivized to return to the labor market.

Some developers are opting to push the start dates back on some of their projects to alleviate this headache. Others, including the larger developers, were able to hedge on construction costs and have kept the wheel turning on their projects. Then, of course, the projects that had financing in place were greenlighted and they have adhered to building schedules. The unintended consequence is lower supply, revenues are increased on existing properties and an increase in pricing.

This dilemma is not limited to one asset class. However, the sectors that performed well throughout the pandemic will continue to do so. The other asset classes, such as, hospitality and retail will simply take longer to go from start to finish due to difficulty in underwriting and financing. But, as real estate has shown before, it is resilient and will correct itself in the near-term future.

Contact Info

To learn more about how property tax issues can affect your investing strategies, please reach out to Tim Feagans directly at tim.feagans@retcgroup.com.[/vc_column_text][/vc_column][/vc_row]